rural indebtedness and practices of mfis in andhra...

Rural Indebtedness and Practices of MFIs in

Andhra Pradesh

Tapas Kumar Sarangi

Centre for Microfinance Research Bankers Institute of Rural Development

Lucknow

2011

Rural Indebtedness and Practices of MFIs in Andhra Pradesh

1

Contains

Page No Acknowledgement -- List of Tables, Figures & Maps -- List of Abbreviations -- Executive Summary -- CHAPTER- I (INTRODUCTION) -- Background Review of Issues in Rural Credit Market Problem in Rural Credit Market Informal Financial System, Indebtedness & Poverty Nature and Extent of Indebtedness Indebtedness by Purpose Indebtedness by Interest Rates Indebtedness by Asset Holding Classes Indebtedness by Sources Incidence of Indebtedness Microfinance Market in Andhra Pradesh CHAPTER- II (DATABASE, METHODOLOGY & SOCIO-ECONOMIC BACKGROUND) -- Analytical Framework & purpose of the study Objectives of the study Expected outcome Methodology & Sampling design Data Collection Classification of Occupational Category Structure of the Report Limitation of the study Review from the findings from the major survey on Indebtedness in India Socio-Economic Profile of the sample households Caste Composition Occupational Profile Demography Land Holding & Irrigation Housing Drinking Water Access to Electricity


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Fuel used for cooking Basic Infrastructure Asset Position Income Distribution Consumption Expenditure Income Distribution Sources of Income CHAPTER- III (FINANCIAL POSITION OF RURAL HOUSEHOLDS) -- Share of formal and informal sources in Rural Credit Market Status of Microfinance in Andhra Pradesh Saving Reason for opening a Bank Account Borrowing Motivation of Borrowing Sources of Informal Borrowing Extent of Magnitude of Indebtedness Distribution of outstanding loan from different sources Access to Insurance Some Characteristics of Formal Borrowing Some Characteristics of Informal Borrowing Preference of Moneylender Multiple Borrowing Over-lending Profile of MFIs Loan Borrowers Reason for using MFI Loan CHAPTER- IV (UTILIZATION, REPAYMENT & COLLECTION PRACTICES) -- Sources wise utilization of Loan Repayment Collection Practices by MFIs Lending activity of MFIs in AP Transparency & Collection Practices by MFIs CHAPTER- V (MAJOR FINDINGS & CONCLUSION) -- Major Findings & Conclusion BIBLIOGRAPHY -- ANNEXURES --


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Acknowledgement

The present report incorporates the findings of the household sample survey on the

debt situation of the rural people and their indebtedness towards different sources of

credit available in the rural market. I am thankful to the authorities of the NABARD who

gave me an opportunity to conduct the study. I have received help from several quarters

during the conduct of the study. I would like to sincerely thank all of them.

First and foremost, I am very much thankful to Shri. S.K. Chatterjee (Director) and Shri.

R.K. Das (Joint Director) of Bankers Institute of Rural Development (BIRD) who gave

me an opportunity to conduct the study and extended their encouragement and advice

during all stages of the study.

My thanks are due to all the officials of CMR for their timely help. Especially Mr. P.C.

Lenka (DGM/FM), Mr. S. Krishnan (AGM) & Mr. T. Sudheer (Manager) were constantly

guided me during the study. I personally admire their cooperation and my hearty thanks

are due to them.

Mr. V. Suresh (DDM, Mahabubnagar), Mr. KSS. Prasad (DDM, Khammam) & Mr. B.

Udaybhaskar (DDM, Warangal) helped me and the team to a great extent while the

survey was being conducted. My sincere thanks are due to all of them. I thank the

officials of DRDA in all three districts for their cooperation and help during the field visits

and data collection work.

The project could not have been completed without the active and timely cooperation of

the study team consisted of Mr. Rajeswar Molukar, Mr. Kumar Tadepalli and Mr. Nitin

Kumar Dongre who worked as Field Investigators in the project and sincerely conducted

the household level data collection. I appreciate the professionalism of the entire team

especially of Mr. Rajeswar who showed exemplary interest during field level data

collection. My hearty thanks are due to all of them.


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My thanks are due to all the resource persons and contact persons from the villages

who spared their time and helped the team during the survey. I extend a hearty thanks

to all the villagers who cooperated with the study team during the conduct of household

level data collection.

Last but not the least; my thanks are due to all the Faculty Members, Officers & Library

Staffs at BIRD and also my colleagues in CMR for their timely help at different stages of

the work.

(Tapas Kumar Sarangi) Principal Investigator


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(List of Tables, Figures & Maps)

Tables Page

Table 1.1: Number of Indebted Households, Outstanding

Households’ Debt, Outstanding Debt per Indebted

Household in Rural Areas --

Table 1.2: Number of Indebted Households & Outstanding Household debt

Institutional & Non-institutional sources --

Table 2.1: Caste Composition --

Table 2.2: District wise Occupational distribution of Households --

Table 2.3: Occupational Profile --

Table 2.4: Socio-economic Condition of the Household in the studied villages --

Table 2.5: Land Particulars --

Table 2.6: Other Amenities --

Table 2.7 Location of different Infrastructural Facilities --

Table 2.8: Asset Position --

Table 2.9: Average annual Expenditure on different items --

Table 2.10: Distribution of Sample HH according to Income --

Table 2.11: Sources of Income --

Table 3.1: Share of Institutional and Non Institutional Agencies in Rural Credit --

Table 3.2: Percentage of Indebtedness Farmers by all sources of Loans --

Table 3.3: Percentage Distribution of Outstanding Loans by Formal and

Informal Source across Size classes of Land in selected states,

2003 --

Table 3.4: Break up of Saving Accounts --

Table 3.5: Most started Reasons of Opening a Bank A/C --

Table 3.6: Share of different sources of Informal Borrowing --

Table 3.7: Extend of Magnitude of Indebtedness --

Table 3.8: Distribution of Outstanding loan from different sources --

Table 3.9: Insurance --

Table 3.10: Some Characteristics of Borrowing & Repayment of Formal Loan --

Table 3.11: Some Characteristics of Borrowing & Repayment of Informal Loan --


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Table 3.12: Extend & Magnitude of Multiple Borrowing --

Table 3.13: Profile of MFI loan Borrowers --

Table 3.14: Most Stated Reasons for using MFI loans --

Table 4.1: Usage of Loan by different sources --

Table 4.2: Institution wise classification of Utilization of Loan Amount --

Table 4.3: Some Characteristics of Repayment by different sources --

Table 4.4: Transparency by MFIs --

Figures

Figure 1.1: Why Informal financial system leads to debt trap & poverty? --

Figure 2.1: Caste Composition --

Figure 2.2: District wise Occupational Distribution of the Households --

Figure 2.3: Occupational Profile --

Figure 2.4: Percentage of Households and Income Breackup --

Figures 3.1: Percentage share of the different informal sources of borrowing

By occupational catagories --

Maps

Map 2.1: Map of Studied Districts in Andhra Pradesh --


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List of Abbreviations

ADWDRS: Agricultural Debt Waiver and Debt Relief Scheme

AHCs: Asset Holding Classes

AIDS: All India Debt Investment Survey

AP: Andhra Pradesh

CBs: Commercial Banks

DRDA: District Rural Development Agency

DDM: District Development Manager

HHs: Households

IIMS: Invest India Market Solution

KYC: Know Your Customer

LPG: Liquefied Petroleum Gas

MFIs: Microfinance Institutions

MFOs: Microfinance Organizations

NABARD: National Bank for Agriculture and Rural Development

NBFCs: Non- Banking Financial Companies

NGOs: Non Governmental Organizations

NIAs: Non-Institutional Agencies

NSS: National Sample Survey

NSSO: National Sample Survey Organization

NCAER: National Council for Applied Economic Research

NREGA: National Rural Employment Guarantee Act

OBC: Other Backward Caste

RBI: Reserve Bank of India

RFAS: Rural Financial Access Survey

SAS: Situational Assessment Survey

SBLP: SHGs Bank Linkage Programme

SERP: Society to Eliminate Rural Poverty

SHGs: Self Help Groups

SC: Scheduled Caste


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ST: Schedule Tribes

RRB: Regional Rural Bank

UNDP: United Nations Development Programme

UP: Uttar Pradesh


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Executive Summary

Over the past few years, a drastic change has occurred in the nature of financial

services for the rural poor in India. Microfinance has witnessed an explosion in

popularity, with the total number of people served by MFIs or members of SHGs

growing at more than 50% every year. Andhra Pradesh has around 49,49,393 number

of MFI clients with a loan outstanding of Rs. 3,56,528 lakhs which is highest as

compared to other states in India. Andhra Pradesh is one of the leading states in terms

of SHG and MFI growth, with the largest number MFIs based in the state. There have

been concerns, through, that this rapid growth has caused intense competition amongst

MFIs competing for both clients and staff. Clients with multiple-borrowings from various

sources are in some cases over-indebted. Many microfinance commercial organizations

have entered the Rural Credit Market in search of profit and are competing to lend to

the poor. In the process of giving loan to the poor the MFIs started chasing targets and

numbers.

The study was conducted in the three tribal districts of Andhra Pradesh i.e. Khammam,

Mahabubnagar and Warangal. These districts have been selected due to the high

penetration of microfinance there as well as the reported incidents of unhealthy

competitive practices by MFIs in the districts. The intension of the study was to find out the share of different sources of finance in

rural areas of Andhra Pradesh. Identifying the gaps, issues and challenges faced by the

rural households to manage their indebtedness situation is another objective of the

study. Further the study aims at understanding the critical issues of multiple borrowing

and the collection practices followed by the MFIs in the state of Andhra Pradesh.

Including the Introductory chapter this report consists of five chapters. The Database,

Methodology & the Socio-economic backgrounds of the studied villages are discussed

in the second chapter. The third chapter provides an in depth analysis on the financial

position of the rural households and their access to credit. The fourth chapter analyses


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the problem of Utilization, Repayment & Collection practices of different credit providers.

The fifth chapter provides a summary of the main findings of the study.

This report presents result from the household survey on the Rural Indebtedness with

special reference to MFIs in three districts (i.e. Mahabubnagar, Khammam and

Warangal) in Andhra Pradesh. The key findings from the survey and analysis are as

follows:

It is estimated from the survey data that on an average more than 80 per cent of

rural households in studied villages in Andhra Pradesh are indebted and all

occupational categories are more or less equally indebted in percentage terms.

Across the occupational categories in case of landless labourers and marginal

farmers the indebtedness level is almost 90 per cent.

The amount of indebtedness was highest in Warangal district. The Large farm

households are also heavily indebted to different sources.

The share of moneylenders is maximum (44.1 per cent) followed by friends &

relatives to the total informal loan borrowed by the rural households.

Out of the total loan outstanding around 44 per cent of the loan outstanding is

under the informal sources, followed by 23.1 per cent from the SHGs, 21.6

percent from the formal sources and 11.4 per cent from the MFIs.

Multiple borrowing is very high in all the studied villages of Andhra Pradesh. It

has been found from the survey that an average of four loans has been borrowed

per household at overall level in Andhra Pradesh. Mahabubnagar has topped

with 4.6, followed by Warangal (4.5) and Khammam (3.9).


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CHAPTER- I

Introduction

1.1. Background

In the 1920s, Malcolm Darling remarked that the “Indian peasant is born in debt, lives in

debt and dies in debt” (Darling, 1925) depicting a picture of the colonial India. More then

sixty years after self- determination and independence, this is still true. The National

Sample Survey (NSS) on the situational assessment of farmers undertaken in 2003

reported that, on an average, 48.6 per cent of farmer households in the country were

indebted, with the percentage being as high as 82 per cent in Andhra Pradesh (NSSO

2005). The growth and development of the economy depend on the smooth flow of rural

credit. Credit becomes crucial factor to production if not available at the right time,

quantity needed and in the required institutional forms. The success of credit oriented

development project is significantly dependent upon the soundness of the credit

institution and the credit delivery system.

Despite major structural changes in credit institutions and forms of rural credit in the

post-independence period, the exploitation of the rural masses in the credit market is

one of the most pervasive and persistent features of rural life in India. There is a vast

literature documenting the imperfections of the rural credit market and its impact on

access to credit for productive purposes, both short term and long term, credit as

insurance against risk, and credit for meeting basic consumption needs including food,

housing, health and education (Swaminathan, 2007).

The trade-liberalised era since 1991 has witnessed the emergence of indebtedness as

a grave problem for the Indian peasantry. In less than a decade since the introduction of

a neoliberal economic regime, incidents of farmers’ suicide were reported from different

corners of the country. This tragic and unprecedented phenomenon caused by

increasing debt-driven vulnerability of peasant households started with the cotton


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farmers of Andhra Pradesh and gradually afflicted other farmers– primarily growers of

various commercial crops in other parts of the country.

The initial confusion that prevailed within the circles of the ruling establishment

regarding the causality of the farmer suicides was more due to a “denial” syndrome than

any serious investigation of the issue. There was an outright non-acceptance of the fact

that the trade policies of the government have been instrumental behind the catastrophe

witnessed in rural India.

The overriding tendency was to attribute the suicides to social problems such as family

disputes or alcoholism. The attitude towards the issue has gradually changed not only

due to the sheer magnitude of the disaster and the political and social outrage that it

generated but also due to sustained enquiries and reporting of the same. The

announcement of the Agricultural Debt Waiver and Debt Relief Scheme, 2008

(henceforth ADWDRS) by the government assumed significance in this regard. The

much-awaited debt-waiver scheme arrived much later than required, and regrettably

after more than 1,60,000 farmers had ended their lives over the last decade; it was

nevertheless a welcome measure.

1.2. Review of issues in Rural Credit Market

In past few decades, some of the most significant innovations within development

economics have been in the analysis of rural credit markets. The conventional wisdom

about credit markets has been radically altered, and now it is widely accepted that

“credit transacted outside the banking circuit is quantitatively huge and qualitatively

critical, especially in developing countries” (Floro and Yotopoulos, 1991)1.

While much has been written on the issue of rural indebtedness, it is worthwhile to

revisit the phenomenon from the perspective of peasant classes. A deeper look at the

1 See Floro, S.L. and Yotopoulos, P.A. (1991), Informal Credit Markets and the New Institutional Economics: The Case of Philippine Agriculture, Westview Press, Inc., Boulder.


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structure of rising indebtedness in rural areas is necessary for the purpose of assessing

the impact it has for the agrarian question in the historical time frame. The tightening

constraint of debt burden on the surplus generated in agricultural production and its

consequent impact for agrarian development needs to be assessed.

This exercise is all the more indispensable once we recognize the incidents of farmer

suicides as only the extreme manifestation of debt-driven vulnerability. The agricultural

production in regions, where farmer suicides are not occurring in multitudes, is not

necessarily unconstrained by debt burden. The variance in the economic and socio-

political structures across regions is more the reason why the symptoms of spiraling

indebtedness have been divergent in their extent across the country.

Moreover, whereas large farmers somehow manage to get crop loans but the access of

small farmers to formal credit agencies or institutional sources is quite limited (Sarap

1991; Swain 1986). The creditworthiness of small farmers is viewed with suspicion

because of their inability and unwillingness to provide acceptable collateral like owned

land, houses, or buildings as mortgage. In most cases they do not possess such assets,

and some even lack valid documents to prove ownership.

Also, as land is their major source of income and a secured asset, they hesitate to

pledge it for fear of losing it in the event of non-repayment of the loan. Petty tenants are

also deprived of credit facilities from institutional sources as in most states of India,

leasing of land is prohibited and tenancy rights are not recorded. Therefore, the tenants

are unable to pledge the tenanted land for obtaining loans from rural banks or co-

operatives. Thus, the deficit households that actually need credit are screened out of

the list of potential beneficiaries of formal credit agencies. To meet their credit needs

they usually depend on private or non-institutional or informal sources. Their personal

relationship with their lessors or employers helps them to get loans. The

landowner/employer lends to his tenant/labourer as in a closely knit village economy,

the prospect of being ostracized deters the borrower from defaulting on the loan. Even

in case of default the landowner/employer can recover the loan in terms of labour or


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crop produce by exercising his economic power. Though they provide credit to deficit

households in emergencies, they usually charge exorbitant interest rates.

Economists have probed deep into the reasons for high interest rates charged on

private loans in backward agriculture. Their different viewpoints can be broadly

categorised into three schools of thought, viz., the lenders’ risk hypothesis, the default

hypothesis and the theory of interlinkage. According to the lender’s risk hypothesis

propounded by Bottomley (1963), while advancing loans the lender faces the risk of

default and so has to add a premium to the opportunity cost of money to cover the likely

loss of capital due to default. Once the risk of default is taken into account, the effective

interest rate may turn out to be no higher than its counterpart in the organised sector

(Basu 1983). Consequently, there is no real room for arbitrage and high interest rates

persist unabated.

Rural interest rate is considered to have four components: (i) opportunity cost of money

involved (ii) premium for administering the loan (iii) premium for risk (iv) monopoly profit.

Bottomley (1975) considers that administrative costs and risk are the important factors

governing interest rate determination in backward agriculture. Platteau et al. (1981),

with data on marine fishing in some sample villages in Kerala, single out risk

considerations as playing a decisive role in the determination of interest rates. He finds

no conclusive evidence that the lender’s policy takes administrative costs into account.

On the other hand, Bardhan (1984) supports the monopoly explanation of usurious rural

interest rates. According to him, the dominant landlord/lender earns monopoly profits by

a two-part tariff on consumption credit.

This is because due to his large assets and urban connections he can obtain unlimited

funds at a fixed interest rate from an outside loan market and then lend them to his

labourers at a higher interest rate. In this case the labourers pay a marginal interest rate

per unit of consumption credit equal to the landlord’s opportunity cost plus a free ‘entry

fee’ for the privilege of borrowing at this rate. The entry fee represents monopoly profits

on the transaction. But Bottomley (1975), Platteau et al. (1981) undermine the


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importance of monopoly profit in the determination of interest rate in rural areas on the

ground that evidence of a strongly personalised informal credit market does not by itself

preclude the operation of the forces of competition as there are no barriers to entry. The

threat of competition is also attested by the fact that borrowers sometimes move, on

their own initiative, from one credit giver to another. Thus the exponents of the lender’s

risk hypothesis consider the risk of default as the major determinant of rural interest

rate.

The lender’s risk hypothesis has been vehemently criticized as the moneylender is the

dominant party in the loan transaction, and in the specific power relations that prevail in

village communities, it is very unlikely that the borrower can default on the loan and go

scot free. Thus the lender’s risk is more myth than reality and the lender is rational

enough to extend loans only against collateral kept as security. If the borrower defaults,

the lender confiscates the collateral.

During 80s and 90s there has been a spurt of research on interlinkage of factor

markets. It is argued that rural credit markets are characterized by potential risk, which

generates an inherent tendency for them to get interlinked with other factor markets.

The theory of interlinked transactions have been defined as “contracts made between

the same pair of individuals relating exchange in more than one commodity or services,

the contracts being linked in an essential way. In other words, contracts between a pair

of individuals in two or more communities that the linked by coincidence, i.e. contracts

that could as well have taken place without change at different points in time and not

necessarily between the same individuals, are not inter-linked in this sense”.

The most plausible explanation for the occurrence of interlocked credit contracts is the

existence of risk, uncertainty, information asymmetry and moral hazard problems in

backward agriculture. Interlinked personalised transactions by their very nature act as a

formidable barrier to the entry of third parties and are thus a source of additional

monopoly power for the dominant partner in such transactions. Besides, personalised

credit transactions interlocked with wage contracts are often an effective way of averting


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group assertiveness or attempts at collective bargaining by labourers. Moreover, as

control on prices is not uniform in all markets or as prices adjust at different speeds in

different markets, the dominant party can bypass the legal and social control by

exercising his power in other markets.

In the case of interlinked credit contracts, if no/low interest rate is charged, it is unwise

to jump to the conclusion that there is absence of usury, since there may be implicit

interest charges in the form of extraction of labour at low wages or purchase of crops at

a lower predetermined price from the borrower. In such cases though the explicit

interest rate is low, the implicit interest is quite high (Basu 1984). Actually when deals

are interlinked, it is no longer correct to think of interest as payment for loans and wages

as payment for labour. The wages and interest vector jointly reflect the price of labour

and loans.

1.3. Problems in Rural Credit Market

Rural credit market in Indian context is characterized by few distinctive features that the

formal credit is readily available for elite class people such as large farmers who are

trusted by the institutional lenders on the basis of their paying capacity, on the other

hand, the access of poor marginal and small farmers to institutional credit is quite

limited (Rao, 1980; Basu, 1983; Swain, 1986; Sarap, 1987; Sarap, 1991; Jodhka, 1995

and others). The inability to provide collateral such as land, jewellery, or house

buildings as mortgage is the major hindrance for the marginal and small farmers in

availing institutional credit. In most of the cases they don’t possess such assets or lack

valid documents to prove their ownership of land. Tenant farmers are also deprived of

credit facilities from institutional sources, as the tenanted land is not legally accepted as

mortgage by banks or cooperatives. So the poor marginal and small farmers are

automatically screened out as potential beneficiaries of formal credit agencies (Swain,

2001). They not only suffer due to lack of their economic power, but also humiliated due

to not having political influence. As a result, they fail to avail the benefits of a large

numbers of developmental programmes those are specifically meant for them. Higher


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strata of the society are able to siphon off the resources originally meant for the poorer

section. The only alternative left for the landless and marginal farmers is to repeatedly

visit the moneylenders’ doorstep to get the linked loans at exorbitant interest rates

accepting large-scale exploitation.

The burden of indebtedness in rural India is great, and falls mainly on the households of

rural working people. The exploitation of this group in the credit market is one of the

most pervasive and persistent features of rural life in India, and despite major structural

changes in credit institutions and forms of rural credit in the post-Independence period,

Darling’s statement (1925), that “the Indian peasant is born in debt, lives in debt and

dies in debt,” still remains true for the great majority of working households in the

countryside.

Rural households need credit for a variety of reasons. They need it to meet short-term

requirements for working capital and for long-term investment in agriculture and other

income-bearing activities. Agricultural and non-agricultural activities in rural areas are

typically seasonal, and households need credit to smooth out seasonal fluctuations in

earnings and expenditure. Rural households, particularly those vulnerable to what

appear to others to be minor shocks with respect to income and expenditure, need

credit as an insurance against risk. Households can respond to, or manage, risks in

several ways. They can use formal and informal risk management instruments

depending on their access to these instruments2. It is possible to separate risk

management into ex-ante and ex-post actions. Ex-ante actions are taken before a risky

event takes place, and ex-post management takes place after its realization. Ex-ante

risk reduction strategies can reduce or eliminate risk (e.g., eradication of malaria-

bearing mosquitoes) or lower exposure to risks (e.g., malaria pills, mosquito nets). It is

also possible for a household to take ex-ante risk mitigation actions that provide for

2 Examples of formal financial risk management tools include loans with flexible repayment schedules, emergency loans, savings, and insurance. Informal financial risk management tools include burial societies, ROSCAS (rotating savings and credit associations) – such as SHGs, moneylenders, and mutual aid.


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compensation in the case of loss. Risk mitigation includes formal and informal

responses to expected losses such as self-insurance (e.g., precautionary savings in

financial or other assets), social networks and formal insurance. Ex-post risk coping

activities are responses that take place after a risky event is realized and involve

activities to deal with realized losses such as such as selling assets, seeking

“emergency” loans (from relatives and friends, moneylenders, banks), removing children

from school, migration of selected family members, seeking temporary employment.

Some governments provide formal safety nets such as public works programs, food aid,

and other transfers that can help households cope with risk.

In a society that has no free, compulsory and universal education or health care, and

very few general social security programmes, rural households need credit for different

types of consumption. These include expenditure on food, housing, health and

education. In the Indian context, another important purpose of borrowing is to meet

expenses for a variety of social obligations and rituals.

If these credit needs of the poor are to be met, rural households need access to credit

institutions that provide them a range of financial services, provide credit at reasonable

rates of interest and provide loans that are unencumbered by extra-economic provisions

and obligations.

Historically, there have been four major problems with respect to providing credit to the

Indian countryside. First, the supply of formal sector credit to the countryside as a whole

has been inadequate. Secondly, rural credit markets in India themselves have been

very imperfect and fragmented. Thirdly, the distribution of formal sector credit has been

unequal, particularly with respect to region and class, caste and gender. Fourthly, the

major source of credit to rural households, particularly income poor working households,

has been informal sector loans which are usually advanced at very high rates of

interest. Further, the terms and conditions attached to these loans have given rise to an

elaborate structure of coercion economic and extra-economic in the countryside.


19

That these factors constitute what may be called the “problem of rural credit” has been

well recognized in official evaluations and scholarship since the end of the nineteenth

century. Given the issues involved, the declared objectives of public policy with regard

to rural credit in the post-Independence period were, in the words of the Governor of the

Reserve Bank of India, “to ensure that sufficient and timely credit, at reasonable rates of

interest, is made available to as large a segment of the rural population as possible”

(Rangarajan, 1996). The policy instruments to achieve these objectives were to be, first,

the expansion of the institutional structure of formal-sector lending institutions; secondly,

directed lending; and thirdly, concessional or subsidized credit (ibid.). Public policy was

thus aimed not only at meeting rural credit needs but also at pushing out the informal

sector and the exploitation to which it subjected borrowers (Chavan, 2001). Rural credit

policy in India envisaged the provision of a range of credit services, including long-term

and short-term credit and large-scale and small-scale loans to rural households.

1.3.1. Informal Financial System, Indebtedness & Poverty

Poverty was not a personal problem due to laziness or lack of intelligence, but a

structural one: lack of capital3. Poor needy people during rainy season (lean season) toil

hard to get income generating activities. Unable to find any opening/chance to get

income generating activity and no access to formal financial services like microfinance,

compels them to rely on to either moneylenders who often lend money at exorbitantly

high interest or alternately depend on traders/landlords for obtaining subsistence and for

absorbing shocks like illness. This also often forces the poor to enter into distress sale

of harvest or labour leading to a vicious poverty trap for the poor (Fig-1). What is

needed then from developmental agencies, be it Public Administration, Multilateral

agencies or Local Institutions, is access to Microfinance rather than subsidies to assist

the poor to come out from the poverty cycle.

3 Alan Jolis 2002, The Good Banker: Grameen Bank, Bangladesh


20

As shown in the Fig-1, when the poor borrow from friends and relatives the interest rate

is generally reasonable and may not be exploitative. Borrowing from three other sources

viz. moneylender, trader and landlord many a times tantamount to a debt trap that

pushes a person into poverty. Perpetual repayment of loan is largely applicable where

poor people borrow money from moneylenders, traders and landlords. It may or may not

be applicable where friends and relatives are the source. And also to other sources

Mon

ey (l

oan)

flow

Writ

ten/

non-

writ

ten

colla

tera

l

Yes

N

Felt need for money by an individual with respect to subsistence, health, marriage & rituality, etc.

Income generating opportunities and earnings matched with need R

epayment (perpetual) of loan in kind /

rupee/ surrender of asset/thing in lieu of m

oney

Sources available to finance the felt needs

Trad

ers

Mon

eyle

nder

s

Land

lord

s

Frie

nds a

nd re

lativ

es

Debt trap (leading to poverty)

Compulsion to borrow

Figure- 1: Why Informal financial system leads Debt trap & Poverty?


21

when the borrower improves repaying capacity and repays loan effectively. After the

Microfinance intervention in the rural areas, especially in tribal living area or backward

area the scenario is slowly metamorphosing.

Though lack of access to Microfinance is major causes for poverty, other causes like

cultural liberty etc., as reported in UNDP report 2004, lack of income generating

activities etc. attributable to poverty are not denied4. The scope of poverty is wide and

immense.

1.3.2. Role of Microfinance in Poverty Alleviation

Poverty is often related to inadequate incomes. Recent studies, however, emphasize

that five clusters of disadvantages (lack of assets, physical weakness, isolation,

vulnerability and powerlessness) characterize the poor in rural areas. The studies also

arrive at broader conceptualization of poverty by including these disadvantages. A

distinction between poverty alleviation and reduction is often made in this regard. The

former is a short-term improvement in the material position of the poor, while the latter is

long-term reduction in the dependency of the poor on those aspects of the structure

which perpetuate poverty, and of vulnerability with respect to changes in their

environment.

Four Dimension of poverty can be identified: lack of asserts, resource, knowledge and

rights. Asserts cover material possessions, while resources cover access to credit,

extension, education, health or drinking water. Knowledge is essentially information that

shapes the cognitive world, ranging from technology to political ideas. Finally, rights

embrace the social, economic and political spheres falling in the legal and traditional

domain. Poverty alleviation covers providing material possessions and opportunities to

obtain income to meet basic needs. Poverty reduction implies sustainable alleviation of

poverty, by covering all four dimensions.

4 Human Development Report 2004, UNDP


22

India has the one of the fast developing country in the world. India’s ‘first world’

economy is oriented to the very highest standards of globalise consumption, and formal

sector incomes and lifestyles reflect this. By contrast, the real incomes and ‘lifestyles’ of

the very poor, particularly in rural areas, are comparable very low. Micro-finance is often

advocated as a solution to multiple social problems in India. Poor Persons with access

to credit can make investments in enterprises that bring them out of poverty.

Over the last few years, savings and credit groups have also helped to manage some

important social programs of the Indian government, such as the distribution of food

grains and school meals in state primary schools. Income in India is closely linked to

social and economic status: whilst the upper and middle classes inhabit the ‘formal’

income from their formal ventures and employment, in other hand the poorest and low

income status are largely ‘informally’ employed. Low income households are not usually

involved in regular income occupations and therefore waiting for job creation strategies

to absorb them; they ‘permanently inhabit’ a dependent segment of the so called

developing Indian economy, in which opportunities for jobs, or for independent and self-

sustaining entrepreneurial capital accumulation, are minimal.

Though poverty reduction has long been a high priority for the Government of India,

microfinance is a still experimental tool in its overall strategies. India’s microfinance

experiments are much differ from the more substantial microfinance institutions and

programmes of its neighbors countries. The United Nations system was perhaps the

first international partner to India’s new experiments with small scale credit schemes.

Most of poor people manage to optimize resources over a time to develop their

enterprises. Financial services could enable the poor to leverage their initiative,

accelerating the process of generating incomes, assets and economic security.

However, conventional finance institutions seldom lend down-market to serve the needs

of low-income families and women-headed households.

They are very often denied access to credit for any purpose, making the discussion of

the level of interest rate and other terms of finance irrelevant. Therefore the


23

fundamental problem is not so much of unaffordable terms of loan as the lack of access

to credit itself. The impact of microfinance on poverty reduction has been measured in

terms of several dimensions, such as improved income, employment and household

expenditure, and reduced vulnerability to economic and social crises. These

measurements have tended to focus on a specific geographic area, an institution or a

small client group and are difficult to generalize or draw conclusions that reach across

borders, income levels, gender or socio-economic status. Even though many of these

anecdotal studies clearly support a role for microfinance in achieving the Millennium

Development Goals, a key challenge in measuring the impact of microfinance is

obtaining reliable data. Sometimes clients are recipients of more than one product,

which are provided by more than one microfinance institution (MFIs). MFIs, it becomes

hard to obtain measures on the exact impact of their services and products on their

clients' lives. We also do not have the answer to the question of what proportion of the

population even has access to credit and savings (Patrick, 2004).

1.4. Nature and Extent of Rural Indebtedness

The All India Debt & Investment Surveys from 1961 to 2002 in respect of number of

indebted households, outstanding households’ debt and outstanding debt per indebted

household in rural areas showed as under.

The number of indebted households, in absolute terms as well as percentage to

total households, declined sharply from 43.1 million (62.8%) in 1961 to 31.8

million (41.3%) in 1971 and further to 18.2 million (19.4%) in 1981. Thereafter,

however, number of indebted households and their percentage to total

households, increased significantly to 27.2 million (23.4%) in 1991 and 39.2

million (26.5%) in 2002, but could not reach the level of 1961.

Amount of outstanding households’ debt progressively increased from Rs.27,89

crores in 1961 to Rs.222,11 crores in 1991 and further to Rs.1,11,468 crore in

2002. However, outstanding households’ debt in terms of per cent of GDP at


24

current market prices declined from 21.4% in 1961 to 6.3% in 1991 and then

significantly rose to 9.4% in 2002.

Table 1.1: Number of Indebted Households, Outstanding Households’ Debt, Outstanding Debt per Indebted Household in Rural Areas

End- June Number in Million

Amount of debt Rs. Crores

Debt per household Rs. Nominal Terms

Period Compound Annual Growth Rate (in % age)

1 2 3 4 5 6 1961 43.1 (62.8) 2789 (21.4) 647 (12629) 1961-71 3.0 (-3.2) 1971 31.8 (41.3) 3752 (12.2) 1180 (12356) 1971-81 5.1 (-3.7) 1981 18.2 (19.4) 6193 (6.2) 3411 (14904) 1981-91 13.6 (4.3) 1991 27.2 (23.4) 22211 (6.3) 8166 (15105) 1991-02 15.8 (8.5) 2002 39.2 (26.5) 111468 (9.4) 28443

(25711) -- --

Figures in the brackets in Col-2 indicate number of indebted households as percentage to total households, in Col-3 indicated per cent of GDP at current market price, in Col-4 indicates at 1999-00 prices & in Col-6 indicates at 199-2000 prices. Source: NSSO (various rounds)

Debt per household also progressively increased from Rs.647 in 1961 to

Rs.28,443 in 2002 in nominal terms. However, in terms of 1999-00 prices, debt

per household declined slightly from Rs.12,629 in 1961 to Rs.12,356 in 1971 but

significantly increased in 1981, 1991 and 2002.

The share of rural indebted households in the total indebted households

increased from around 77% in 1991 to around 80% in 2002. Indebtedness

(households with debt as percentage to total households) was larger in rural

areas than in urban areas. Further, the gap between rural and urban

indebtedness widened in 2002 as against in 1991.

According to National Council of Applied Economic Research Survey (2008), at

end June 2005, 23.9% (49.2 million) of all households in the country had loans

outstanding with the ratio being 25.2% (36.4 million) in rural areas.

According to various surveys, the aggregate amount of outstanding debt of rural

households, in nominal terms, increased significantly during all the previous four

decades (1960s, 1970s, 1980s, and 1990s). The increase in debt of rural


25

households, both in nominal and real terms, in the 1990s was the largest among

all decades.

The outstanding debt, in nominal terms, in rural areas during the period 1991 to

2002 grew at an around compound rate of 15.8%, while in real terms it grew by

8.5% (4.3% in the 1980s). Outstanding debt per indebted household in real terms

in rural areas increased sharply between the periods 1991 to 2002.

According to the All India Debt & Investment Survey (1971-72), 40% of the small

farmers and 38.5% of the rural artisans reported outstanding debt of Rs.380 and

Rs.450 per household respectively. Household expenditure for consumption

accounted for about 70% in case of artisans. Between 50% and 60% of the total

outstanding debt of the poorest cultivating households (asset groups of up to

Rs.2500) was availed at relatively higher interest rates of above 18%. As against

this, in case of higher asset groups, larger was the proportion of outstanding debt

of households at interest rates below 12.5%.

According to the Rural Labor Enquiry (1974-75) debt incurred for consumption

purposes accounted for 48.2% of the indebtedness in 1974-75 compared to

53.3% in 1964-65. In 1974-75, the share of ceremonial expenses at 18.8% was

little lower and of productive purposes at 12.7%, was marginally higher than in

1964-65. Of the debt incurred in 1974-75, 47.9% was borrowed from

moneylenders as against 30.6% in 1964-65. Cooperative Societies and

commercial banks accounted for 5.3% and 4% respectively; compared to 1964-

65, the share of cooperatives had only improved marginally. Other sources

comprised employers, shopkeepers etc. providing another 43.4%.

The Sivaraman Committee on Consumption Credit (1976) giving the estimate of

liability of borrowing households under the various holding size groups up to and

including two hectares in each of the States, estimated that the actual liability of

all the borrowing households affected by the debt legislation worked out to

Rs.974.4 crores as on June 30,1971


26

The data of the All India Debt and Investment Survey (AIDIS) conducted by the National

Sample Survey Organization revealed that between 1961 and 1981 the number of

borrowing households as well as households borrowing from non-institutional sources

continued to decline significantly and thereafter between 1991 and 2002, their number

significantly increased. As against this trend, number of households borrowing from

institutional sources, however, marginally increased between 1961 and 1981 and the

increase was significant between 1991 and 2002. The percentage share of households

borrowing from non-institutional sources in the total was higher than that of households

borrowing from institutional sources in all decades except decade ended 1991.

The percentage share of outstanding debt of households borrowing from non-

institutional sources in the total outstanding debt continued to decline in all decades

except decade ended-2002. The outstanding debt of households borrowing from non-

institutional sources in terms of percentage to total outstanding dent was considerably

higher than that of borrowing from institutional sources between 1961 and 1971, which

then declined significantly between 1981 and 2002.

While percentage of total indebted households increased by 44.1 in 2002 over that of

1991, percentage of households indebted to non-institutional sources significantly shot

up by 100.8% as against mere 8.8% to institutional sources during the period. Number

of households indebted to agricultural and professional moneylenders increased sharply

to 15.1 million accounting for 38.5% of the total 39.2 million in 2002. The total

outstanding debt increased sharply by 401.8% from 1991 to 2002, whereas outstanding

debt to non-institutional sources sharply shot up by 498% as compared to 347.7% to

institutional sources during the period. Outstanding debt to agricultural and professional

moneylenders in particular steeply rose by 844% as against 370.4% to cooperative and

commercial banks between 1991 and 2002. It may be recalled that in the scheme of

integrated rural credit recommended by the All India Rural Credit Survey and accepted

by the Government, “no place has been assigned to the private moneylenders”.


27

Table 1.2: Number of Indebted Households & Outstanding Household debt Institutional & Non-institutional sources

Credit Agency Number of Indebted Households (Million)

Outstanding Debt (Rs. in Crores)

Year 1961 1971 1981 1991 2002 1961 1971 1981 1991 2002 Institutional 7.5

(17.3) 7.6 (24.0)

8.9 (48.8)

18.2 (61.5)

19.8 (46.4)

413 (14.8)

1094 (29.2)

3794 (61.3)

14215 (64.0)

63648 (57.1)

Non-Institutional

35.6 (82.7)

24.2 (76.0)

9.3 (51.2)

11.4 (38.5)

22.9 (53.6)

23760 (85.2)

2658 (70.8)

2399 (38.7)

7996 (36.0)

47820 (42.9)

All Agencies 43.1 (100)

31.8 (100)

18.2 (100)

29.6 (100)

39.2 (42.7)

27890 (100)

3752 (100)

6193 (100)

22211 (100)

111468 (100)

CAGR: Institutional

-- -- 1.77 8.27 0.85 -- -- -- -- --

Non-Institutional

-- -- 2.29 7.22 -- -- -- -- --

All Agencies -- -- 5.55 2.85 -- -- -- -- --

Figures in the brackets indicates percentage to the total, CAGR= Compound Annual Growth Rate Source: Calculated from NSSO (various rounds)

Number of borrowing households from institutional sources marginally increased from

7.5 million in 1961 to 7.6 million (101.3%) in 1971, which however significantly rose to

8.9 million (117.1%) in 1981 and sharply to 18.2 million (204.5%) in 1991 and 19.8

million (108.8%) in 2002. As against this, number of borrowing households from non-

institutional sources significantly declined from 35.6 million in 1961 to 24.2 million

(67.9%) in 1971 and steeply declined to 9.3 million (38.4%) in 1981, which, then

significantly increased to 11.4 million (122.6%) in 1991 and sharply shot up to 22.9

million (200.9%) in 2002. The pattern has been that with the declining total number of

indebted households from 1961 to 1981 and increasing from 1991 to 2002, the number

of indebted households to non-institutional sources also declined from 1961 to 1981 and

then increased between 1991 and 2002.

The percentage share of cultivator households and their share of borrowings from

institutional sources in the total progressively increased from 1961 to 1991, but

significantly declined between 1991 and 2002.

According to the National Sample Survey Organization (NSSO) it was, further, revealed

that as many as 45.9 million (51.4%) farmer households in the country out of a total of

89.3 million households did not access credit, either from institutional or non-institutional


28

sources. A more or less similar trend was observed in the pattern of outstanding

household debt too.

According to the NSSO 59th round Survey, the share of non-institutional sources in the

outstanding household debt increased sharply to Rs.636,48 crores in 2002 as

compared to Rs.142,15 crores in 1991. A major reason for increase in the overall

household debt and the increase in the share of households indebted to non-

institutional sources between 1991 and 2002 was attributed to a significant increase in

current farm expenditure and household expenditure in rural areas. The household

expenditure of rural households included many items for which households found it

difficult to obtain loans from institutional sources.

The Invest India Incomes & Savings Survey for the recent period (IIMS, 2007) also

revealed that rural households often borrowed substantial amount to meet financial,

medical emergency and social obligations. These first two purposes accounted for

about 32.8% and 60.6% of the loans availed of by indebted earners (persons in the age

group of 18-59 and earning some cash) from institutional and non-institutional sources

respectively. In case of emergency, households had easy and reliable access to non-

institutional sources. Financial emergencies included unplanned expenditure on

business, consumption, religious and social ceremonies, among others, for which bank

loan was not available.

1.4.1. Indebtedness by Purpose A substantial portion of cultivator household’s debt was for productive purposes at the

all-India level. However, debt for productive purposes as a percentage of total debt

declined from 72% in 1981 to 63% in 2002. Similarly, the share of debt incurred for farm

business declined from 64% in 1981 to 53% in 2002. Within farm business expenditure,

the share of capital expenditure declined from 45.3% to 34.3%. The increase in capital

expenditure for non-farm business could not fully compensate the fall in farm business


29

expenditure, which resulted in a fall in the share of overall productive expenditure

between 1981 and 2002.

There were substantial inter-State variations in the purposes for which debt was

incurred. Outstanding debt for productive purposes varied from 40% to 80%. While it

was as high as 80% in Maharashtra, followed by 78% in Karnataka & 75% in Gujarat it

was as low as 40% in Assam, 44% in Kerala and 47% in Bihar. The outstanding debt

largely incurred for productive purposes in the States (Andhra Pradesh, Karnataka,

Maharashtra and Punjab), which reported suicides.

1.4.2. Indebtedness by Interest Rates The data on interest rates charged by non-institutional agencies were much higher than

those charged by institutional agencies for outstanding debt as on end-June 2002.

About 85% of outstanding debt of cultivator households from institutional agencies was

in the interest range of 12% to 20% per annum. On the other hand, 36% of cultivator

households outstanding debt from non-institutional agencies was at the interest rates

range of 20% to 25% and another 38% of outstanding debt at high interest rate of 30%

and above. This shows the exploitative nature of non-institutional credit market.

1.4.3. Indebtedness by Asset Holding Classes

According to data provided by AIDIS, the share of institutional sources in household

debt declined between 1991 and 2002, while that of non-institutional sources increased.

However, a detailed analysis of the RBI in its report on currency and finance (2007-08)

established that institutional sources continued to provide credit in the 1990s broadly at

the same pace as in the 1980s as was explained by the following.

The distribution pattern of indebtedness of rural households indicated that the

percentage of households borrowing from non-institutional sources were higher among

those having the low value of assets (less than Rs.5000, Rs.5000 to Rs.10,000 &


30

Rs.10,000 to Rs.20,000) than those having high value of assets (Rs.20,000 to above

Rs.250,000) in 1991, and value of assets from less than Rs.15,000 to Rs.200,000 in

2002.

Thus, the distribution pattern of indebtedness of the rural households belonging to

different Asset Holding Classes (AHC) representing income levels, showed that the

lower income groups depending upon non-institutional sources was relatively high.

Conversely, as the income level increased, the proportion of households borrowing from

institutional sources also increased. The data of the Invest India Incomes and Savings

Survey (2007) conducted by Invest India Market Solution (IIMS) further supported this

trend, as its data established that the earners (who were in the age group of 18 to 59

years & earned some cash) at higher income level borrowed more from institutional

sources than non-institutional sources. The Survey found that 70% earners in the

annual income bracket of more than Rs.400,000 borrowed from institutional sources as

compared to only 27.5% in the case of earners in the income bracket of less than

Rs.50,000.

The relatively increased dependence of households with low income on non-institutional

sources had been attributed to several factors. The studies revealed that households

with low level of income had often to borrow for such purposes for which loans were not

generally and readily provided by financial institutions. Rural financial institutions by and

large provided loans for productive purposes which generated or increased income from

which loan with interest could be repaid on due date. Besides, the inability of low-

income groups to provide collateral to secure loan, even for productive purposes,

accompanied by cumbersome procedure many a times compelled them to take

recourse to the informal financial system.

It was, also, observed that the access of higher AHCs to institutional sources was more

on account of their ability to provide required collateral, educational background to

understand bank procedure, enhanced capacity to borrow, increased level of


31

confidence of lenders in them, higher financing requirements resulting into cost-effective

lending, their greater awareness about availability of different sources of finance etc.

The indebtedness increased with the increase in income levels (represented by asset

holding classes). The pattern of indebtedness across different AHCs remained broadly

unchanged between 1991 and 2002. This, therefore, sharply suggests that enabling

environment needs to be created to increase income level of rural households along

with improving their formal educational level.

1.4.4. Indebtedness by Sources

Total debt of farmer households was estimated at Rs. 11300 crores in 2003, of which

Rs.6500 crores (57.5%) was from institutional agencies and Rs.4800 crores (42.5%)

from non-institutional agencies. Private moneylenders accounted for Rs.2900 crores

(25.7%) and traders Rs.600 crores (5.31%). Farmers’ debt from moneylenders carried

interest rate more than 30%. Clearly, there is an urgent need to relieve the farmers from

private debt carrying high interest rate by transferring it to institutional sources.

There are wide variations across States in the share of institutional and non-institutional

sources of farmers’ debt (SAS, 2003). In a majority of States, the outstanding debt of

the farmers was financed more by institutional agencies than by non-institutional

agencies. However, in a few States, such as Andhra Pradesh, Rajasthan, Assam, Bihar

and Punjab the financing of the debt was more by the non-institutional sources.

The share of moneylenders in the farmers’ outstanding debt was higher in Andhra

Pradesh (53%), Tamil Nadu (40%), Rajasthan (37%), Punjab (36%) and Bihar (33%). In

all these States, except Bihar, the share of moneylenders in farmers’ outstanding debt

was higher than that of commercial banks. Traders were a significant source of

financing debt in Rajasthan, Jammu & Kashmir, Assam and West Bengal.


32

1.4.5. Incidence of Indebtedness Of the 89.33 million farmer households estimated in 2003, the SAS shows that 43.42

million (48.6%) were indebted. In other words, more than half (45.91 million) or 51.4%

had not accessed debt either from institutional or non-institutional sources. A large

proportion of them might have been financially excluded. The average outstanding debt

per farmer household was Rs.12,585 and per indebted farmer household was

Rs.25,902.

A State-wise analysis showed that in 2003 incidence of indebtedness was higher in

States, which had input-intensive or diversified agriculture. The incidence of

indebtedness was the highest in Andhra Pradesh followed by Tamil Nadu, Punjab,

Kerala, Karnataka, Maharashtra, and Haryana. Average debt per farmer was higher in

States with higher incidence of outstanding debt. For instance, average outstanding

debt per farmer household was higher in the State of Punjab followed by Kerala,

Haryana, Andhra Pradesh and Tamil Nadu; all relatively developed and better banked

States. On the other hand, the incidence of indebtedness as well as outstanding debt

per farmer was low in the States of Central, Eastern and North-Eastern regions of the

country indicating partly low absorptive capacity and partly inadequate banking

services. Clearly, neither indebtedness nor outstanding debt per farmer was an indicator

of backwardness. In the five States of Andhra Pradesh, Karnataka, Kerala, Maharashtra

and Punjab where suicides were reported, both indebtedness and outstanding debt per

farmer household were higher than the All India level. As will be seen, in these States

except for Kerala, large proportion of the debt was incurred for productive purposes.

Strikingly, sources of debt were different. For instance, in Maharashtra the institutional

sources accounted for a major portion of the debt whereas in Andhra Pradesh it was

from moneylenders.


33

1.5. Microfinance Market in Andhra Pradesh

Andhra Pradesh in southeast India is the fifth most populous of India’s 28 states, with

75 million inhabitants. Recent state governments in Andhra Pradesh have invested in

progressive policies and programs focused on growth and building a sizeable

information technology industry around the city of Hyderabad. Andhra Pradesh has also

undertaken a series of large-scale projects to fight poverty, the most prominent being

the Society to Eliminate Rural Poverty (SERP).

SERP is a service delivery program under the Rural Development arm of the state

government that offers far reaching livelihood promotion programs, including

employment generation, vocational training, and access to savings and credit through

SHGs. SHGs have a long and important history in Andhra Pradesh and have deeper

penetration there than in any other state, with a total of 1.47 million SHGs reaching 17.1

million clients statewide (Srinivasan 2010). Within the broader SHG approach in Andhra

Pradesh, SERP (and other Andhra Pradesh government programs) has a significant

presence, directly working with 9.5 million of these SHG clients.5 The federal

government is looking to expand this approach to other states, most notably to Bihar, a

state with a less developed microfinance market than the one in Andhra Pradesh and

significantly less outreach.

One reason households have large amounts of credit from the SHG–bank linkage

program supported by SERP is the “total financial inclusion program” the Andhra

Pradesh Government began three years ago. Traditionally SHGs were based on

member savings, and rules generally capped bank loans to the SHGs at three to four

times this savings base, effectively limiting borrowings to Rs. 100,000 or less. But under

the new program, banks began to lend up to Rs. 500,000 to targeted SHGs. Additionally

some loans to SHGs had a five year repayment period, up from one year, and any

amount of interest paid by SHGs above 3 percent would be reimbursed to the SHG by 5 MFI Registration Data, November 2010, Rural Development Department, Government of Andhra Pradesh


34

the Andhra Pradesh Government if the group did not default on its bank loan. SERP

encouraged SHG members to repay moneylender and MFI loans, but evidence

suggests that instead members kept multiple loans from multiple sources.

In the late 1990s some of India’s first MFIs got their start in Andhra Pradesh. Today, five

of India’s largest NBFC MFIs are headquartered in Andhra Pradesh making it the

epicenter of the microfinance industry in India. Over the last five years MFIs in Andhra

Pradesh were among the first to attract significant investment from specialized MFIs as

well as mainstream private equity players. These capital injections have provided the

equity capital for growth but they have also created strong incentives for continued

levels of high growth and profitability to drive higher valuations. All of this has fostered a

perception of MFIs as being primarily profit-oriented organizations. While most MFIs

have acted responsibly, a few have generated unusually high returns on assets,

compensated executives lavishly, and remained nontransparent in ways that only

furthered a negative stereotype of MFIs.

In recent years MFIs across India have diversified geographic coverage, and Andhra

Pradesh’s share of the total national MFI outreach has dropped to less than one-third.

Nevertheless, a few of the largest MFIs remain heavily focused in Andhra Pradesh

where growth has been rapid.

The combined presence of the large and well-funded state-backed SHG program and

five of India’s largest and fastest growing MFIs has resulted in a rapid proliferation of

credit across Andhra Pradesh and wide use of multiple loans by borrowers. And levels

of household debt are high. In Andhra Pradesh, the average debt outstanding per

household is Rs. 65,000 as compared to a national average of Rs. 7,700 of outstanding

microfinance debt per poor household.6

6 Srinivasan (2010) estimates the total number of microfinance clients in Andhra Pradesh at 25.36 million (19.11 million SHG members and 6.25 million MFI customers), with a total debt of Rs. 1650 crores.


35

The parallel growth of two approaches to delivering credit has expanded the reach of

credit substantially over the past several years, as has competition between the state-

supported SHGs and private MFIs. SHG lending reaches 17.1 million SHG members

with Rs. 1170 crores outstanding (Srinivasan 2010). By November 2010, MFIs were

reaching 9.7 million borrowers with Rs.720 crores outstanding, according to the

government. But MFIs, while still somewhat smaller in total outreach than SHGs, had

been growing more rapidly over the past 18 to 24 months as SHG disbursements were

slowing. Also, the repayment tenor of many SHG loans is considerably longer and often

more flexible than those of MFIs, reducing the size of repayment installments and

thereby the debt servicing burdens on borrowers.

Nonetheless, the combined outreach and continued growth has meant that the borrower

accounts of SHGs and MFIs together on a per capita basis is over four times the

median of Indian states. Srinivasan (2010) compares five Indian states with high levels

of microfinance penetration and finds that the average loan amounts per poor

household in Andhra Pradesh is triple the size for the next largest state. By any of these

measures the provision of credit in Andhra Pradesh has reached much greater

proportions than in any other state in India. Reports also suggest that many households

have multiple loans significantly increasing their overall debt.

In sum, there is much higher penetration of microfinance in Andhra Pradesh than in any

other state in India. Household debt comes from several sources, not just MFIs. The

picture that emerges from the data suggests that households in Andhra Pradesh have

too many loans and too much debt than seem to be supportable considering their

income levels and ability to repay.

The intensity of penetration of micro finance in the State of AP is the highest at the all

India level. This is calculated in terms of share of micro finance clients i.e., aggregation

of MFI & SBLP clients vis-a-vis share of the State in terms of Population7.

7 Sa-dhan Report, 2008


36

The recently emerging (and internationally more established) MFI model is a different

ball-game altogether. Here the sponsor is a profit-oriented venture capitalist, who sees

the rural credit market as a fresh business opportunity. The MFI apparently brings great

professionalism, innovation and technology to its enterprise. It also ventures to provide

loans that banks do not.

But MFIs form no groups that are engaged in governance functions as SHGs. Even

when they operate through NGOs, MFIs are primarily concerned with lending and

recovering (mostly every week) what they lend to cohorts of people, at times at very

high rates of interest. The recent suicide episode in Andhra Pradesh (Ghate 2007) is a

grim reminder of the possible extreme consequences of MFI lending. Since profits are

the overwhelming consideration for an MFI, there is enormous pressure to lend at all

costs (“dumping money on borrowers” as Ghate calls it) and concomitantly to recover

the loan. Added to this is the requirement of MFIs of a security deposit as cash

collateral. Also high rates of interest, inevitable because of high transaction costs and a

relatively low scale of operations. Another dubious practice of many MFIs is that they

charge borrowers interest on the entire remaining period as well, even if they were to

return a loan early. This could become a killing penalty with long remaining periods.

There is also a great lack of transparency, especially in “start-up” MFIs, about such

practices (Ghate 2007).

Despite the fact that borrowers are often illiterate people, without adequate information

on the terms of the loan, and we get a potentially explosive situation, which in a

vulnerable context such as Andhra Pradesh (already riddled with suicides) was bound

to explode. Finally, the really poor do tend to be implicitly or deliberately excluded as

they are unable to bear the pressure of recovery (Ciravegna 2005; Scully 2004; Marr

2004; Simanowitz 2002).

People are reported to have had to borrow from moneylenders in order to repay MFIs.

Other borrowers have “absconded”, migrated or at times tragically committed suicide.

This is linked to abusive collection practices that MFIs sometimes resort to. “Abusive” is


37

a well-defined technical term with strict usage in the literature (CGAP 2004)8. It includes

“(i) adjusting overdues against the security deposit, (ii) holding the weekly meeting in

front of the defaulter’s house, (iii) MFI staff sitting in front of the defaulter’s house, (iv)

offensive language used by group leaders or staff, (v) putting up a loan overdue notice

in front of a defaulter’s house” (Ghate 2006). Also mentioned are instances of recovery

of large individual loans by encashing signed blank cheques, legal action to enforce

blank promissory notes and physical force used by group leaders. There is huge

pressure on all members because of joint liability. No one gets another loan until all

repayments are made.

A major demand of MFIs is that they should be allowed to raise interest rates in an

unfettered manner. “No regulation can control supply and price simultaneously. So if

more credit has to flow to farmers, the price (interest rate) must be deregulated”

(Mahajan 2004). The enactment of anti-usury laws is said to have led to a reduction in

supply of credit and rise in interest rates. There was a massive expansion in the supply

of credit to the poor in the social banking era. And this was at low rates of interest. It is

only in the reform era that the supply of institutional credit has contracted and the

usurious moneylender has made a comeback.

As per inventory on micro finance Organizations9, 62% of MFOs are operating in

Andhra Pradesh alone. Out of 484 MFOs operating in the State, 476 (98%) have spread

to other states. Only a few, which are NBFCs, have inter-state spread. The outreach of

MFIs in the State as on 31 March 2010 is 6.3 Million clients (23% of All India). In terms

of loan portfolio, MFIs in Andhra Pradesh have a loan outstanding of Rs.521 crores

(28%) as on 31.3.2010. The major NBFCs viz., SKS, Spandana, Share microfin, etc are

operating in almost all the districts of the State.

8 See CGAP 2004, ‘Interest Rate ceiling and Microfinance: The Story So Far’, Occasional Paper, Washington DC. 9 Inventory on MFOs, APMAS


38

CHAPTER- II Database, Methodology & Socio-Economic Background

2.1. Analytical Framework & Purpose of the Study

Indebtedness is a function of availability of credit in relation to its demand, as also the

ability of the recipient to service it. Rural indebtedness per se is not an issue. If properly

serviced through income generated from farm operations or any other activity, debt

would not turn into a burden. The servicing ability of the recipient is related to his ability

to generate sufficient returns from the activity in which the credit is deployed.

Access to credit is essential to improve the living standard of rural households in low

income countries10. However, formal financial institutions (banks, co-operatives and so

on) cannot always achieve high repayment rate successfully, and hence, the

policymakers need to explore a better design for such institutions (Zeller and Meyer

2002). Knowledge about financial position or rural households’ borrowing, such as how

much financial needs they face and from what sources they borrow money, would

provide much helpful insight to designing as effective rural credit delivery system.

Over the past few years, a drastic change has occurred in the nature of financial

services for the rural poor in India. Microfinance has witnessed an explosion in

popularity, with the total number of people served by MFIs or members of SHGs

growing at greater than 50% every year. AP has around 49,49,393 number of MFI

clients with a loan outstanding of Rs. 3,56,528 lakh which is highest as compare to any

states in India11. Andhra Pradesh is one of the leading states in terms of SHG and MFI

growth, with the largest MFIs based in the state. There have been concerns, through,

that this rapid growth has caused intense competition with MFIs competing for both 10 Credit is a means to enable investment by solving a liquidity problem. The liquidity problem arises from the fact that outlays triggered by the investment precede (expected) future returns (Petrick 2005). 11 See N. Srinivasan: Microfinance India- State of the Sector Report 2009 & 2010, Sage Publication, New Delhi.


39

clients and staff. Clients with multiple-borrowings from various sources are feared to be

over-indebted. Again this commercial model of microfinance in India, with its minimalist

and standardized model of lending, would grow into a bubble and run into trouble. Many

microfinance commercial organizations have entered the market in search of profits and

are competing to lend to the poor. In the process of giving loan to the poor the MFIs

started chasing targets and numbers.

The intension was to study the share of different sources of finance in rural areas of

Andhra Pradesh. Identifying the gaps, issues and challenges faced by the rural

households to manage their indebtedness situation is another part of the study. Further

the study aims at understanding the critical issues of multiple borrowing and the

collection practices followed by the MFIs in the state of Andhra Pradesh. However the

specific objectives of the study are as follows:

2.2. Objectives of the Study

• To study the financial position of rural households and their indebtedness to different

Banks, SHGs and MFIs and their relative share in household debts.

• To study the magnitude of multiple financing and specific reasons for preference of

the poor for going to MFIs, Banks, moneylenders and to understand the issues and

problems of multiple borrowings.

• To find out the observance of code of conduct by MFIs relating to fair practices to

borrowers like transparency in rate of interest, other charges charged, periodicity of

loans, recovery practices and the feedback from the borrowers.

2.3. Expected Outcome of the study This study will be useful on following grounds

• Enabling policy makers for better understanding of the sector, extent of its

penetration and quality of financial services.

• Allowing policymakers to assess the effect of competition in terms of indebtedness.


40

• Providing an overview of fair code of conduct & practices, including collection and

recovery mechanism that are followed by MFIs.

• Providing policymakers, researchers, and practitioners throughout India with up-to-

date & useful information on access to finance by the poor and their debt situation in

selected tribal belts of Andhra Pradesh.

2.4. Methodology and Sampling design

The study was conducted in the three tribal districts of Andhra Pradesh i.e. Khammam,

Mahabubnagar and Warangal. These districts have been selected due to the high

penetration of microfinance there as well as the reported incidents of unhealthy

competitive practices by MFIs in the districts.

The study has utilised both primary and secondary sources of information. The primary

information has been collected at the household level from the selected villages of three

districts of Andhra Pradesh. The secondary sources include reports from various

organizations, books, journals etc. Apart from this, secondary data published in the

official website of NABARD, RBI etc. has been utilised.

The villages have been selected from tribal areas of Andhra Pradesh. For selection of

sample villages; consultation with concerned DDMs of NABARD and respective DRDA

offices has been done. Households were the final sampling units in the sampling

design. Selection of households has been done through stratified random sampling with

out replacement. The strata have been prepared on the basis of social and economic

classes.

2.5. Data Collection

A household level questionnaire was designed to get information from the selected

households. Besides this, village level questionnaire has been utilised to collect useful

information from the different institutions dealing with Microfinance. Pre-testing of


41

questionnaire has been done in three selected villages and the response of the

households to pre-testing has been incorporated.

In addition, the number of households in each village to be surveyed in the preliminary

sampling framework is closer to the corresponding number of households per village for

other larger surveys conducted in the Indian context including those conducted by the

National Sample Survey Organisation (NSSO).

2.6. Details of Sampling Level Method of selection Number selected District Fixed (Khammam, Mahabubnagar

and Warangal) 3

Village Stratified Random Sampling based on size (gathered from 2001 census) and distance to nearest town

8 villages from each district12

Household Stratified random sampling based on occupation and landholding. Information about all households in the village will be gathered directly by Principal Investigator before the survey begins.

30 HHs per village

The survey has recorded different types of information related to the financial situation

of the household including (i) Basic household information/Identification etc. (ii) Income

information i.e income from different sources (iii) Possession of different Assets

(Agricultural asset, Physical assets, financial asset and consumer durable) (iv) Land

holding (v) Monthly Consumption Expenditure on different items like food, non-food,

clothing, education, medical etc. (vi) Saving information (type of saving instruments,

formal and informal, used by the household (vii) SHG information (information related to

borrowing from the SHGs) (viii) Rate of interest charges by different sources (ix)

Amount repaid & amount outstanding (x) MFI information (information related to

borrowing from MFIs (xi) Collection practices by MFIs (xii) Reason for preference of

MFIs loan (xiii) Reason for not using formal sources like CB, RRBs, Co-operatives etc.

12 See Annexure-1 for a detail village list


42

The analysis is based on both secondary and primary data collected by a team of

researchers. The villages selected are located in diverse location with different level of

socio-economic conditions. Detailed information has been collected from the twenty four

villages of Andhra Pradesh having high level penetration of Microfinance loan. The

secondary information relating to the indebtedness situation has been collected from

different survey report including different rounds of National Sample Survey

Organization.

2.7. Classification of Occupational Categories The total sample households (i.e.720 households) have been classified into six different

occupational categories for analysis. These categories are Landless labourers, Marginal

Farmers, Small Farmers, Large Farmers, Business & Salaried and Others. A detail

explanation for the criteria used for each category has been given in the Annexure-2 at

the last part of the report.

2.8. Structure of the Report

Including the Introductory chapter this report consists of five chapters. The Database,

Methodology & the Socio-economic backgrounds of the studied villages are discussed

in the second chapter. The third chapter provides an in depth analysis on the financial

position of the rural households and their access to credit. The fourth chapter analyses

the problem of Utilization, Repayment & Collection practices of different credit providers.

The fifth chapter provides a summary of the main findings of the study.

2.9. Limitation of the Study

The present study, mainly based on field information, is subject to many of the

limitations of field-based information. Sometimes the respondents overstate their

problems and understate the benefits accruing from a particular programme. The

information collected from them is based on their memory. In rural areas there is no


43

tradition of keeping records. In such a situation the information provided by the

respondents are based on their memory. However the team found that the respondents

treated them as one of their own and helped the team in all possible ways in providing

information. Besides, many officials at different institutions provided information and

other help while collecting data.

The team has tried to cross check the information from different sources. Despite this

there may be some limitations that may have remained in the data set. The inference

drawn and policy recommendations made may be viewed with the above limitations.

Map 2.1: Map of Studied Districts in Andhra Pradesh


44

2.10. Review of findings from major survey on Rural Indebtedness in India

Shortly after independence in 1947, the first survey of rural indebtedness (All India

Rural Credit Survey, or AIDIS) prepared by RBI documented that moneylenders and

other informal lenders met more than 90 per cent of rural credit needs. The share of

banks in particular was only about 1 per cent in total rural household debt. This ratio

remained low until 1971 when it was 2.4 per cent, although the share of formal sources

of credit in rural areas increased steadily to 29 per cent due to the rising share of

cooperatives. Following bank nationalization, the share of banks in rural household debt

increased to about 29 per cent between the period 1981 and 1991 while the share of

formal or institutional sources in total debt reached 61.2 per cent before declining in

1991. Correspondingly, the share of moneylenders declined steadily over these four

decades, from 69 per cent in 1951 to less than 16 per cent in 1991.

Unfortunately, no comparable official survey has been conducted in the past decade,

which also witnessed substantial reforms in the financial sector, leaving undocumented

how rural credit access has evolved since 1991. The World Bank- NCAER Rural

Financial Access Survey of 2003 (RFAS) allows the only comparative benchmark for

the post-1991 period, limited only for two states. The RFAS 2003 covered 3,000

households in 12 districts for each of two large states, AP and UP13. Relative to the

findings of the AIDIS-1991, the incidence of formal indebtedness (i.e, proportion of

households with debt outstanding to a formal financial institution) had further increased

by 2003, possibly indicating greater access and the ability to borrow14. At the same

time, the RFAS results clearly document that access to formal financial institutions

remains severely constrained in rural areas, particularly for the poorest of the

households, with informal lending still substantial. Only about 41 per cent of rural

households in the two states have a deposit account in a formal institution and 21 per

cent have access to credit from a formal source. Amongst formal institutions,

13 The survey design incorporated 50 households in each of five villages per district. More details on the methodology and the results of the RFAS are summarized in Srivastava and Shukla (2004). 14 Note, however, that higher debt incidence can be interpreted in different ways; it could signify greater access and ability to borrow but it could also denote greater distress leading to higher demand for debt.


45

commercial banks are by far the most dominant source of formal finance for rural

households. They have the largest share of household deposits among rural banks, and

are also the most important source of credit for those rural households who have

access to the formal sector.

These averages, low as they are, hide the fact that rural banks serve primarily the

needs of the richer rural borrowers: some 66 per cent of large farmers have a deposit

account; 44 per cent have access to credit. Meanwhile, the rural poor face severe

difficulties in accessing savings and credit from the formal sector: 70 per cent of

marginal/landless farmers do not have a bank account and 87 per cent have no access

to credit from a formal source.

The inability of rural banks to successfully cater to the financial needs of the poor may

be attributed to a combination of several factors stemming from problems of asymmetric

information, incomplete enforcement and inadequate communication, as well as several

government policies including high fiscal deficits (resulting in crowding out), interest rate

regulations, and interference with rural financial institutions15. For present, it suffices to

observe that formal credit access remains severely deficient in rural areas, particularly

for the poor, and this vacuum is made up primarily by informal sources of borrowing.

Around 44 per cent of the households in AP and UP borrowed informally at least once in

the preceding 12 months, at an average interest rate of 48 per cent per annum (RFAS).

Although informal borrowing is very important for the poorest households, who are the

most deprived of formal finance, it is important for virtually all rural household

categories.

The most recently conducted study on Access to Finance in Andhra Pradesh by IFMR

in 2010 reveals that 78.6 per cent of rural AP households have access to a savings

account. Only a small proportion of savings accounts (14.3 per cent) were opened for

the purpose of savings. Many accounts were instead opened for the purpose of

15 For a detail discussion of these factors, see Basu and Srivastava (2004)


46

receiving government benefits or to help in receiving government benefits or to help in

receiving a loan.

This study reported that 93.1 per cent of rural AP households have a loan outstanding.

However, despite concerns of over-borrowing from MFIs, only a small share of rural

households (11 per cent) had a loan outstanding from an MFI. Around 72 per cent of

rural households have a member who belonged to an SHG. Roughly half (53.5 per cent)

of rural households have a loan outstanding to an SHG. Indebtedness to moneylenders

remains high. (An estimated 17 per cent of rural households have a loan outstanding

from a moneylender). Yet interest rates charged by moneylenders were, in most cases,

only slightly higher than those charged by MFIs. Multiple borrowing is very common. (An

estimated 83.7 per cent of rural households have more than one loan outstanding). Yet

very few households have more than one loan from an MFI.

2.11. Socio-Economic Profile of the sample households Before discussing the indebtedness situation among the sample households from

various dimensions it is important to discuses the socio-economic profile of the families

such as demography, land holding size, education level, asset structure, housing,

consumption expenditure etc., which have strong bearings on the borrowing of funds,

their utilisation and the income level of family, which together determine the vulnerability

of indebtedness taking the rural household to bankruptcy.

2.11.1. Caste Composition Table-2.1 presents data on the distribution of sample households by social groups.

Overall, 23.5 per cent households are from ST community, 30.3 per cent are from SC

community and 29.6 per cent are from OBC and 12.7 per cent from general category.

Looking at the district-wise distribution, it is seen that Khammam has the highest

percentage of households from the Schedule Tribes (32.5 per cent) followed by

Warangal (25.0 per cent). It is the Khammam and Warangal that has drawn more than

half the members from SC/ST category.


47

Table 2.1: Cast Composition

Caste status Mahabubnagar Khammam Warangal Overall STs 31 (12.9) 78 (32.5) 60 (25.0) 169 (23.5) SCs 67 (27.9) 73 (30.4) 78 (32.5) 218 (30.3) OBC 88 (36.7) 52 (21.7) 74 (30.8) 213 (29.6)

General 50 (20.8) 31 (12.9) 10 (4.2) 92 (12.7) Minority 04 (1.7) 06 (2.5) 18 (7.5) 28 (3.9)

Total 240 (100.0) 240 (100.0) 240 (100.0) 720 (100.0) Note: Figures in parenthesis are percentage of households in that category Source: Field Survey

Figure 2.1

2.11.2. Occupational Profile Looking at the occupational distribution of the sample households we can found out that

overall 35.7 per cent of the households were marginal farmers i.e. less then one acre of

land for cultivation. Small farmers constitute 23.5 per cent followed by landless

labourers at 20.7 per cent. However there are only 7.2 per cent households are coming

under large farmer category. 6.8 per cent households are dependent on business

related activities like shopkeeper or petty traders as their primary occupation.


48

Table 2.2: District wise Occupational distribution of Households Name of the District/Villages

Landless Labourer

Marginal Farmer

Small Farmer

Large Farmer

Business Others Total

Mahabubnagar 46 (19.2)

88 (36.7)

55 (22.9)

20 (8.3)

18 (7.5)

13 (5.4)

240 (100.0)

Khammam 61 (25.4)

96 (40.0)

60 (25.0)

08 (3.3)

11 (4.6)

04 (1.7)

240 (100.0)

Warangal 42 (17.5)

73 (30.4)

54 (22.5)

24 (10.0)

20 (8.3)

27 (11.3)

240 (100.0)

Overall 149 (20.7)

257 (35.7)

169 (23.5)

52 (7.2)

49 (6.8)

44 (6.0)

720 (100.0)

Source: Field Survey *Figure in the brackets represents percentage to total number of HHs

Figure 2.2

District wise Occupational Distribution of the Households


49

Figure 2.3

Table 2.3: Occupational Profile Districts Occupational

Categories Percentage Households

Mah

abub

naga

r Landless Labour 19.2 Marginal Farmers 36.7 Small Farmers 22.9 Large Farmers 8.3 Business 7.5 Others 5.4

Kha

mm

am

Landless Labour 25.4 Marginal Farmers 40.0 Small Farmers 25.0 Large Farmers 3.3 Business 4.6 Others 1.7

War

anga

l


Ove

rall


Source: Field Survey


50

2.11.3. Demography Table-2.4 summarises the family profile of the sample house holds of twenty four villages

in three districts of Andhra Pradesh along with the housing quality and basic amenities

like sources of water and access to electricity.

Looking at the family profiles of all the sample villages it is found that, the total

population of the all the villages is 4717. Out of the total population 41.7 per cent are

adult male, 37.7 per cent are adult female, 20.6 per cent are children.

However, analyzing the population break up across different occupation category, it is

observed that the male population is higher then female population. As regards to the

family size of the overall studied villages, it is 6.6 where as it is maximum in the case of

small farmer category (7.0) and lowest (5.4) in case of business category.

Table 2.4: Socio-economic Condition of the Household in the studied villages Size Class

No. of HH

Illiterate head of the HH ( in % age)

Demography Average family size

Housing Quality

Sources of Drinking Water

Percentage of HH electrified

Adult Children

Thatched (in % age)

Tilled (in % age)

Semi Pucca (in % age)

Pucca (in % age)

Tube well (in % age)

Well (in % age)

Others (in % age)

Male (in % age)

Female (in % age)

(in % age)

Landless labourers

149 (20.7)

78 (44.6)

420 (21.3)

317 (17.9)

217 (22.3)

6.4 42 (38.5)

48 (21.1)

34 (15.1)

25 (15.8)

139 (21.4)

10 (16.7)

00 (0.0)

17 (7.4)

Marginal Farmers

257 (35.7)

48 (27.4)

715 (36.3)

730 (41.1)

286 (29.4)

6.7 37 (33.9)

88 (38.6)

77 (34.2)

55 (34.8)

244 (37.5)

11 (18.3)

02 (20.0)

62 (26.9)

Small Farmers

169 (23.5)

29 (16.6)

470 (23.9)

386 (21.8)

324 (33.3)

7.0 24 (22.1)

48 (21.1)

77 (34.2)

20 (12.7)

154 (23.7)

09 (15.0)

06 (60.0)

21 (9.1)

Large Farmers

52 (7.2)

07 (4.0)

124 (6.3)

131 (7.4)

56 (5.7)

6.1 00 (0.0)

07 (3.1)

12 (5.3)

33 (20.9)

30 (4.6)

22 (36.6)

00 (0.0)

48 (20.9)

Business 49 (6.8)

05 (2.8)

129 (6.6)

86 (4.8)

52 (5.3)

5.4 02 (1.8)

19 (8.3)

06 (2.7)

22 (13.9)

45 (6.9)

04 (6.7)

00 (0.0)

43 (18.8)

Others 44 (6.1)

08 (4.6)

111 (5.6)

124 (7.0)

39 (4.0)

6.2 04 (3.7)

18 (7.8)

19 (8.5)

03 (1.9)

38 (5.9)

04 (6.7)

02 (20.0)

39 (16.9)

Overall 720 (100)

175 (24.3)

1969 (100.0)

1774 (100.0)

974 (100.0)

6.6 109 (15.1)

228 (31.7)

225 (31.3)

158 (21.9)

650 (90.3)

60 (8.3)

10 (1.4)

230 (31.9)

Source: Field survey

2.11.4. Average Land Holding & Irrigation Table-2.5 summarizes the information on land holding pattern in all the districts. From

Table-2.5, it is observed that in Mahabubnagar the average land owned per households

is about 1.4 acres and the average land operated per household is around 1.6 acres.

The average land irrigated per household is 0.7 acres. In the district of Khamman the

average land owned per household is 1.2 acre which is a bit lower then Mahabubnagar.

In case of Warangal district it is highest i.e. 1.6 acre per household. Similarly if we

compare the average operated land per household we can see that again it is highest

(1.9) in Warangal district and infect, even higher than the overall average land operated

in all the villages. Table 2.5: Land Particulars (Area in acres) Districts Average Land

Owned per household

Average Land Operated per household

Average land irrigated per household

Average value of land per household (at current price)

Mahabubnagar 1.4 1.6 0.7 Rs. 70,225 Khammam 1.2 1.4 0.3 Rs. 54,647 Warangal 1.6 1.9 0.6 Rs. 65,292 Overall 1.5 1.7 0.5 Rs. 64,358

Note: Area in Acres and value in rupees Source: Field Survey

From the table 2.5 we can also see the average value of land per household. Overall it

is rupees 61,750 per acre of land. However it is Rs.70,302/- in Mahabubnagar followed

by Rs.65,109/- and Rs.54156/- in Warangal and Khammam districts respectively.

2.11.5. Housing & Other Amenities A. Housing About the type of houses in which the sample respondents are living, it observed that

about 31.7 per cent households are having tilled type of houses followed by 31.3 per

cent having semi-pucca and 21.9 per cent having Pucca and 15.1 per cent having

thatched type of houses. Comparing across the occupational category we can see that

the landless labourers and marginal farmer category are staying in thatched and tilled

type of houses.


B. Sources of Drinking Water As regards to the overall situation for the drinking water, the main sources for drinking

water in the sample villages is tube well and dug well (90.3 per cent) followed by well

(8.3 per cent) (Table-2.4). Among the tube well users Marginal farmer constitute 37.5

per cent followed by landless labourers 21.4 per cent.

C. Access to Electricity From the information presented in the relevant table 2.4, it is observed that, 31.9% HHs

have access to electricity for domestic use in the studied villages of AP. However rest

68.1%, do not have access to it.

D. Type of Fuel used for cooking Around 56.7% of the households (overall) in the studied villages are using firewood for

cooking, followed by 18.3% using kerosene and 15.8% using coal. Very few are using

electricity (7.8%) and LPG (1.4%) for cooking purpose in these villages. Comparing the

same across the sample villages, it is found that around 64.6% in Khammam are using

firewood and 19.4% in Warangal using kerosene for cooking. Table 2.6: Others Amenities

District Fuel used for cooking Percentage of household having a latrine within their house

Firewood/Cow dung

Coal Kerosene Electricity/Heater LGP gas

Mehebubnagar 46.3% 18.4% 21.6% 11.6% 2.1% 49.6% Khammam 64.6% 14.9% 12.4% 6.9% 1.2% 41.5% Warangal 59.3% 16.3% 19.4% 3.6% 1.4% 55.4% Overall 56.7% 15.8% 18.3% 7.8% 1.4% 46.2%

Source: Field survey

Table 2.7: Location of different Infrastructural Facilities Available in selected villages in Andhra Pradesh (distance in km)

Sl. No.

Dis

tric

t Mandal Name of the

Village District Head-

quarter

Mandal Office

Bus Station

Railway Station

Post Office

Primary Health Centre

Co-operative Society

Commercial Bank/

Regional Rural Bank

Market

1.

Mah

abub

naga

r

Addakal Gajulateta 8 8 8 8 V 8 8 8 8

2 Atmakur Amarachinta 15 15 15 15 15 15 15 15 15

3. Jadcherla Badepalle 15 6 V V V V V V V

4. Shadnagar Burgula 14 14 14 14 14 14 14 14 14

5. Addakal Sankalmaddi 35 16 V 35 V 16 16 16 16

6. Jadcherla Bureaddipalle 15 6 6 6 6 6 6 6 6

7 Kothur Chegur 35 20 20 35 V 20 20 20 20

8. Balanagar Gundlapotlapalle 35 8 8 35 8 8 8 8 8

9.

Kha

mm

am

Nelakondapalli Nelakondapalli 30 V V 35 V V V V V

10. Nelakondapalli Buddharam 30 12 12 30 V 12 12 12 12

11. Nelakondapalli Painampalli 36 6 V 36 V 6 6 6 6

12. Nelakondapalli Raya guden 40 10 V 40 V 10 10 10 10

13 Chintakani Kodumuru 18 8 8 18 18 18 18 18 18

14. Wyra Thatipudi 43 6 6 43 6 6 6 6 6

15. Chintakani Vadanam 18 8 8 18 8 8 8 8 8

16. Khammam Venkataya Palam

12 12 12 12 12 12 12 12 12

17.

War

anga

l

St. Ghanpur Venkatadripet 18 8 8 8 8 8 8 8 8

18. Dharma Sagar Devanoor 20 6 6 6 6 6 6 6 6

19. Wardhannapeta Labarthy 25 7 7 7 7 7 7 7 7

20. Dornakal Chilukodu 80 10 10 10 10 10 10 10 10

21. Atmakur Atmakur 25 V V 25 V V V V V

22. Hasan Parthy Pegadapally 7 7 7 7 7 7 7 7 7

23. Hanamkonda Paluvelpula 8 8 8 8 8 8 8 8 8

24. Nekkonda Nekkonda 80 10 10 10 10 10 10 10 10

Source: Field Survey. *Note: V= Within the village or less then 1 KM distance


2.11.6. Basic Infrastructure The availability of various types of infrastructure facilities in the selected villages has been shown in Table-2.7. It can be seen that most of these facilities are available within 8-10 km, in case of relatively developed villages, while the distance varied from 10-20 or more kms, in case of the backward villages. However in only few villages these facilities are available within the village itself or approximate distance less then 1 km. 2.11.7. Asset position

Table-2.8 gives a brief summary of assets position of the sample households. Looking

at the asset position of overall household in all the districts, It is observed that almost

every HH has one or more than one bicycle and the total numbers of bicycles in all the

villages is 706. Besides bicycle some HHs have asset like Television sets (554), Motor

cycle (228), and Radio (245). A few households also have pump sets (57) and tractor

(09) and around 40 to 50 per cent are having a mobile phone. Overall the mean value of

all physical assets per household is Rs.4869. However, the mean value for consumer

durable is Rs.4174 followed by agricultural assets Rs.1073 and Rs.878 for livestocks. Table2.8: Asset Position (In Rupees) Districts Mean value of

Agricultural assets Mean values of Consumer durable

Mean value of Livestock

Mean value of all physical asset

Mahabubnagar 1260 4814 817 5752 Khammam 927 4212 914 4270 Warangal 1018 4751 788 4972 Overall 1073 4174 878 4869


2.11.8. Consumption Expenditure Family expenses are the major portions of the expenditure for the rural households. If

the expenses incurred are within the level of income earned, the households can

augment their saving and investment. If a person is unable to get the expected income

from his occupation, his consumption need pushes him to depend on the informal

sources, especially the moneylenders, friends & relatives. The loss in business or

agriculture, interest burden, insufficient income, additional investments in the farm or

business out of family income drive the borrower to carry the heavy burden of family


expenses. Higher expenses over and above the income pushes the rural household to

approach more than one credit agency and shoulder heavy burden of debt.

Table 2.9 presents the average annual expenditure in terms of rupees on different items

by three studied districts of Andhra Pradesh. On the non-durable food item the highest

average annual money expenditure is from Mahabubnagar district (Rs.5615), followed

by Warangal (Rs. 5102) and Khammam (Rs.4991). On the other hand for the durable

goods, commodities and services such as: clothing, footwear, construction or repair of

residential houses or purchase of land, expenditure on utensils, social functions

expenditure, educational and medical expenses, the maximum average annual

expenditure is done by Warangal (Rs.7853), followed by Khammam (Rs. 7699) and

Mahabubnagar (Rs. 6504). Khammam district (Rs.718) ranked top among the three

districts for repaying old debt, where as Mahabubnagar and Warangal’s average annual

expenditure for repaying old debt are Rs.654 and Rs. 471 respectively.

Table2.9: Average annual Expenditure on different items (In Rupees)

Sl. No

Items Mahabubnagar

Khammam

Warangal

Overall

1 Food Items 5615 (43.4) 4991 (36.9) 5102 (37.7) 5602 (40.5) 2 Clothing 970 (7.5) 916 (6.8) 888 (6.6) 914 (6.6) 3 Footwear 416 (3.2) 320 (2.4) 384 (2.8) 389 (2.8) 4 Construction and repair of

residential houses or purchase of land

1267 (9.8) 1481 (10.9) 1194 (8.8) 1224 (8.8)

5 Purchase of utensils and furniture

455 (3.5) 402 (3.0) 487 (3.6) 437 (3.2)

6 Social functions (Marriage/ Funeral ceremonies etc.)

2153 (16.6) 3124 (23.1) 2959 (21.9) 2917 (21.1)

7 Educational expenses 320 (2.5) 227 (1.7) 470 (3.5) 339 (2.5) 8 Medical expenses 923 (7.1) 1229 (9.1) 1471 (10.9) 1306 (9.4) 9 Repayment of old debt 654 (5.1) 718 (5.3) 471 (3.5) 595 (4.3) 10 Others 170 (1.3) 111 (0.8) 88 (0.7) 122 (0.8) OVERALL 12,943 (100.0) 13,519

(100.0) 13,514 (100.0) 13,392

(100.0) Source: Field Survey Figure in the brackets represent percentage to the overall


2.11.9. Income Distribution

The distribution structure: number and percentage of sample household according to

their annual income class categories in the studied region has shown below in Table

2.10. Out of 720 households surveyed all over the three districts of Andhra Pradesh

24.3 per cent households come under the middle income range of Rs. 30,000 to Rs.

40,000 and least percentage (7.8 per cent)belong to the income group with household

annual income is excess of Rs.50,000. In Mahabubnagar the distribution pattern of

annual income ranges between the different households is quite homogeneous, as their

percentage share does not have significant gap. However in the case of Khammam

district it can be seen that around 20 to 30 per cent households are comes under higher

section of income ranges i.e. above Rs. 30,000 while around 40 to 50 per cent

households surveyed has income lower three ranges less than Rs. 30.000. In Warangal

district no such clear cut distribution pattern has evolved. Table 2.10: Distribution of Sample HH according to Income

Districts

Annual Income

Mahabubnagar Khammam Warangal OVER ALL

<Rs. 10,000 19 (26.1) 28 (38.3) 26 (35.6) 73 (10.1) Rs. 10,000- Rs. 20,000 31 (26.5) 58 (49.6) 28 (23.9) 117 (16.2)

>Rs. 20,000- Rs. 30,000 51 (32.3) 63 (39.9) 44 (27.8) 158 (21.9)

>Rs. 30,000- Rs. 40,000 69 (39.4) 46 (26.3) 60 (34.3) 175 (24.3) >Rs. 40,000- Rs. 50,000 51 (36.2) 29 (20.6) 61 (43.3) 141 (19.6)

>Rs. 50,000 19 (33.9) 16 (28.6) 21 (37.5) 56 (7.8)



Figure 2.4: Percentage of Households and Income Breackup

Source: Table-2.9

2.11.10. Sources of Income

It may be seen from Table No 2.11 that 60 per cent of the total annual income of the

household is sourced from the Agriculture or crop sector, for each of the three districts

as well as overall. The second and third important sources after agricultural/crop-head

are from wage labour which comprises agriculture, non-agriculture and NREGA work

(name changed MGNREGA) and livestocks respectively. The others sources like free

collection, service/job, professional/business, old age pension all contibute marginal

amounts to the total annual income for all three districts: Mahabubnagar (12 per cent),

Khammam (10.3 per cent) and Warangal (12.5 per cent).

Table 2.11: Sources of Income Name of the Districts

Percentage share of different sources to Household’s total Annual Income Agricultural/ Crop

Wage Labour (Agrl + Non-Agrl + NREGA)

Livestocks Free collection

Service/Job Professional/Business

Old age pension Others

Mahabubnagar 60.2 15.5 12.3 1.2 3.2 4.9 2.1 0.6 Khammam 58.4 21.1 10.2 2.6 1.7 2.6 3.2 0.2 Warangal 62.6 17.8 7.1 0.2 5.6 2.3 3.9 0.5 Overall 59.9 18.1 9.2 1.2 3.6 3.3 3.1 0.4

Source: Field Surve

CHAPTER- III

Financial Position of Rural Households

Financial services play an important role in assisting the poor in managing their money

and in improving their economic status. The state has intervened in this segment to

address the issues of inequity from time to time. It has not only created institutional

mechanisms, but also has had targeted schemes that help the poor to come out of

poverty. However, most of the efforts have been supply-driven and have looked at the

credit and not the savings needs of the poor. The microfinance institutions (MFIs) have

addressed the issue of financial flows and have succeeded to some extent. But still

reliable financial services are not widely available.

3.1. Share of Formal and Informal sources in the Rural Credit Market of India Among the Non-institutional Agencies (NIAs), Professional Moneylenders are in the top

position. Though the relative share of these groups varies over the years their grip over

the Rural Credit Market has not been loosened.

According to the All India Rural Credit Survey Committee (1954), the Share of NIAs in

the total rural credit was 92.7 per cent in 1951-52. The percentage has come down to

81.3 in 1961-62 and to 68.3 in 1971-72 (Table-3.1). The Cooperative Banks did not

make much progress before independence in reducing the role of NIAs in the rural

credit market. The nationalization of commercial banks and emergence of RRBs

widened the branch network in rural areas thereby reducing the market share of NIAs

has increased up to 42.9 per cent in the year 2001-02. The dominance of NIAs in rural

credit market has remained as a factor to reckon with. The share of Institutional

agencies in the Rural Credit Market increases from 7.3 per cent in 1951-52 to 66.3 per

cent in 1991-92. It stood 57.1 per cent in the year 2001-02. However, still more than 30

per cent of the rural credit has to be sourced from Non-Institutional Agencies and as a

result the performance of Institutional agencies in rural credit market has attracted lot of

criticism from the planners, academicians and researchers.


Table 3.1: Share of Institutional and Non Institutional Agencies in Rural Credit Agency 1951-52@

1961-62#

1971-72*

1981-82*

1991-92*

2001-02^

Government 3.3 2.6 7.1 3.9 5.7 5.3

Cooperatives 3.1 15.5 22.0 29.9 23.6 27.3

Commercial Banks 0.9 0.6 2.4 28.9 35.2 24.5 Others 00 00 0.2 0.5 0.7 00 All Institutional Agencies 7.3 18.7 31.7 63.2 66.3 57.1 Landlords 1.5 0.6 8.1 3.6 3.7 2.2 Agricultural moneylenders 24.9 36.0 23.0 8.3 6.8 8.1

Professional moneylenders 44.8 13.2 13.1 7.8 10.7 21.5

Traders & Commission Agents 5.5 8.8 8.4 3.2 2.2 3.2

Relatives & Friends 16.2 8.8 13.1 8.7 4.6 6.7 Others 1.8 13.9 2.6 5.2 2.6 1.2 Non-Institutional Agencies 92.7 81.3 68.3 36.8 30.6 42.9 All Agencies 100.0 100.0 100.0 100.0 100.0 100.0

Sources: 1. @ Report of the All-India Rural Credit Survey Committee, Abridged Ed., (1954), p-6 2. # All India Debt and Investment Survey 1961, Quoted by Tandon P.L., A Profile of Rural Indebtedness,

Social Scientist, Vol. 1 6(4), 1988. 3. * Government of India (1998), Debt and Investment Survey, Report 420, p. 26. 4. ^ Compiled from various publications of NSSO (1998a, 1998b and 2005)

According to the 59th round survey of NSSO (report no 498) there are nearly 150 million

rural households out of which around 90 million are farmer households. At the All India

level around 49 per cent of the farmer households were indebted (col 2 in Table 3.2).

One can say that 51 per cent of the farmer households are financially excluded. These

exclusion levels vary from state to state. For example, it can be concluded that Andhra

Pradesh has the highest percentage of financial inclusion (82 per cent of farmer

households in AP are indebted). On the other hand, Meghalaya has the lowest

percentage of financial inclusion (only 4 per cent of farmer households are indebted).

These are misleading figures because the indebtedness here covers loans from both

formal and informal sources.


Table 3.2: Percentage of Indebted Farming Households by All Sources of Loans, by Source of Loan and Distribution of Outstanding Loans by Sources, 2003

State Percentage of Indebted Farming households in Total Rural Households (All Sources)

Percentage of Farmer HHs by source of Loan

Percentage Distribution of Outstanding Loan by Sources

Formal Informal Formal Informal

1 2 3 4 5 6 Andhra Pradesh 82 54 77 31.4 68.5 Arunachal Pradesh

06 14 103 26.9 73.1

Assam 18 15 88 37.5 62.6 Bihar 33 23 84 41.7 58.5 Chhattisgarh 40 66 56 72.4 27.7 Gujarat 52 63 49 69.5 30.5 Haryana 53 76 50 67.6 32.5 Himachal Pradesh 33 57 65 65.3 34.7 Jammu & Kashmir 32 09 94 67.6 32.3 Jharkhand 21 44 60 64.1 35.9 Karnataka 62 57 55 68.9 31.2 Kerala 64 96 40 82.3 17.6 Madhya Pradesh 51 64 66 56.9 43.0 Maharashtra 55 92 30 83.8 16.2 Manipur 25 06 99 18.2 81.9 Meghalaya 04 02 97 6.0 94.0 Mizoram 24 33 67 77.3 22.6 Nagaland 37 20 79 68.8 31.1 Orissa 48 68 46 74.8 25.1 Punjab 65 58 70 47.9 52.1 Rajasthan 52 38 81 34.2 65.8 Sikkim 39 18 89 57.8 42.2 Tamil Nadu 75 59 67 53.4 46.5 Tripura 49 46 55 79.7 20.3 Uttar Pradesh 40 47 70 60.3 39.7 Uttaranchal 07 65 44 76.1 23.9 West Bengal 50 51 73 58.0 42.1 Group of UTs 51 42 71 59.0 41.0 All India 49 56 64 57.7 42.4

Note: Formal and Informal is more than 100 per cent because formers borrow from multiple sources. Source: Calculated from NSSO (2005). The percentage of indebted farmer households by source of loan (cols 3 and 4 in Table

3.2) shows 56 per cent of indebted farmer households obtain loans from formal sources

and 64 per cent from informal sources. The total percentage is more than 100 (120 per

cent) because farmers take loans from multiple sources. Approximately, we can say that


only 56 per cent of the indebted farmer households are financially included as they are

getting loans from formal sources. The shares in formal and informal sources vary from

state to state. In AP, 54 per cent of the indebted farmer households obtain loans from

formal and 77 per cent from informal sources (total is 130 per cent). Table 3.2 also

gives another distribution by formal and informal sources (cols 5 and 6). This gives

distribution of outstanding loans by sources. The table indicates that if a farmer’s

outstanding loan is Rs 100, around Rs 57.7 is from formal sources and Rs 42.4 is from

informal sources. These percentages provide interesting information at the state level.

For example, the percentage of loans from formal sources in Chhattisgarh, Jharkhand,

Orissa and Uttar Pradesh is more than 60 per cent and higher than that of All India. On

the other hand, only 31 per cent of loan is obtained from formal sources in Andhra

Pradesh. Therefore, the source of loan is important for examining the extent of financial

inclusion.

Another issue is the inclusion of credit for small and marginal farmers. Table-3.3 shows

that the share of formal loan sources increases with the size of land. At the All India

level, the share of loans from formal sources varies from 22.6 per cent to 58 per cent for

small and marginal farmers, while it varies from 65 to 68 per cent for medium to large

farmers. Dependence of small and marginal farmers on informal sources is high even in

states like Andhra Pradesh, Punjab and Tamil Nadu. For example, small and marginal

farmers of AP obtain 73 per cent to 83 per cent of their loans from informal sources.

This indicates very low financial inclusion for Andhra Pradesh. The NSS data also

shows that across social groups, indebtedness through formal sources is lower for

scheduled tribes as compared to others.


Table 3.3: Percentage Distribution of Outstanding Loans by Formal and Informal Source across

Size classes of Land in selected states, 2003 State

Size Class of Land Owned

<0.01 0.01-0.40 0.40-1.00 1.01-2.00 2.01-4.00 4.01-10.00

10.00+

All Size

Formal Sources AP 16.9 19.3 25.1 26.6 41.5 48.6 49.5 31.4 Bihar 36.5 20.8 47.0 66.1 63.4 19.6 70.1 39.2 Maharashtra 58.3 83.2 80.2 78.8 83.4 88.7 91.1 83.8 Orissa 64.7 62.4 77.1 72.1 88.4 96.9 13.2 74.8 Punjab 24.8 29.2 65.6 49.1 61.2 47.5 30.1 47.9 Tamil Nadu 19.1 37.4 46.0 61.5 65.2 74.3 82.9 53.4 All India 22.6 43.3 52.8 57.6 65.1 68.8 67.6 57.7 Informal Sources AP 83.2 80.9 75.0 73.4 58.4 51.4 50.5 68.5 Bihar 63.5 79.2 53.0 33.8 36.6 80.4 29.9 58.5 Maharashtra 41.6 16.8 19.8 21.1 16.2 11.3 8.9 16.2 Orissa 35.4 37.5 22.8 27.9 11.7 3.2 86.8 25.1 Punjab 75.2 71.0 34.5 50.9 38.8 52.4 70.0 52.1 Tamil Nadu 80.9 62.5 53.9 38.6 34.7 25.7 17.2 46.5 All India 77.4 56.7 47.2 42.4 34.0 31.2 32.8 42.3

Source: Calculated from NSSO (2005).

3.2. Overview of Microfinance in Andhra Pradesh

Microfinance is not without its problems, mostly relating to its recent rapid growth,

especially in Andhra Pradesh. In 2007, there were about 8 million borrowers and around

Rs 400 crores in microcredit in the country. Today there are over 25 million borrowers

and around Rs 225 billion microcredit. This expansion has been accompanied by

anecdotal evidence of over-indebtedness of clients due to careless lending practices,

largely rooted in the inability of MFIs to verify clients’ amount of outstanding debt with

other institutions. There have been a number of reporting cases in the media on debt-

related suicide, though no systematic investigation into the claims.

While these reports of heavy debt burden on the poor are distressing, it is important to

keep in mind that rural indebtedness is not the result primarily of MFI activity in fact, the

majority of debt among households in poor areas is non-MFI loans. A recent survey by

the Centre for Microfinance has revealed that a staggering 93 per cent of the


households in AP have a loan outstanding16. Of these the vast majority, 82 per cent,

were from informal sources (57 per cent borrowed from friends with interest, 17 per cent

from a moneylender), and only 11 per cent had a loan from an MFI. Moreover, multiple

borrowing from the same source is most prominent among those who borrowed from

informal sources: only 30 per cent of active MFI borrowers had more than one loan

outstanding, compared to 85 per cent of rural households who were active borrowers

from informal sources

As microfinance expands, there will undoubtedly be frictions between MFIs and clients,

government schemes, and politicians. Some will be genuine, others motivated by a

desire to get loans waived, and yet others from attempts to increase influence or protect

the interests of existing moneylenders whose business may be threatened. Unless there

are some clear, universal regulations binding MFIs, there will be continued attempts by

local political entrepreneurs to intensify these frictions for political gain.

The offering of credit by MFIs is pigeonholed into the ‘grameen’ type with little flexibility

and the self-help group (SHG) type with more flexibility. The loan products available in

the formal sector do not address the needs of the poor. Therefore, there is still a gap in

the needs of the poor and the offerings (Fisher and Sriram 2002)17.

Microfinance fills a key need in developing countries like India: the provision of financial

services to low-income clients who traditionally lack access to formal banking for

several reasons. Those could include the absence of collateral or any evidence of

ownership of assets; informal employment; unverifiable credit history; and high

transaction costs per rupee loaned, due to the small loan size. Microfinance loans

provide financial access to the poorest that allows many of them to start new

businesses, grow existing businesses, insure against shocks due to bad weather and

illness, and smooth consumption. In the absence of microfinance, the poor will have no

16 Johnson Dough and Meka Susmita (2010): Access to Finance in Andhra Pradesh, Centre for Microfinance Institute for Financial Management Research (IFMR), Chennai. 17 Fisher, Thomas and M S Sriram (2002): Beyond Micro-Credit: Putting Development Back into Micro-Finance, Sage-Vistaar, New Delhi.


choice but to approach the unregulated local moneylenders who provide services that

are fast and flexible, but charge usurious interest rates in the range of 60-120 per cent

per year — and who may often enforce repayment by illegal and exploitative means.

In contrast, although delivering credit to the poor through any means is an expensive

endeavour resulting in above-average interest rates, some of the biggest MFIs in India

recently announced an interest rate cap of 24 per cent. Some study estimate that the

break-even interest rate for MFIs in India ranges between 20-38 per cent, depending on

the size and age of the MFI. Costs are primarily driven by the expense of giving small

loans to the poor caused by the difficulty in identifying customers in rural areas and

urban slums, appraising them to select the creditworthy, disbursing money, collecting

repayments and the cost of raising funds.

Ironically, some of the largest Indian MFIs charge rates substantially lower than MFI

rates in many parts of the world: for instance, in Mexico and the Philippines, rates are

often above 60 per cent per annum. The MFI contract, however, is fragile. If borrowers

are encouraged to default en masse, the system will fall apart and a valuable financial

product may become unviable. It is very likely that this is happening in AP, with the

current high default rates not reflecting that the average borrower was in distress but

rather the effect of recent actions18 encouraging borrowers to default willfully. 3.3. Savings Table-3.4 shows percentage decomposition of household having saving-bank account

in three districts of Andhra Pradesh. Overall there are 72.5 per cent household

possesses bank account, while individually Warangal (81.6%) has highest percentage

of household accessing bank, followed by Mahabubnagar (73.3%) and then Khammam

district (68.2%). Private Commercial Banks have marginal share of percentage of

having household saving-bank deposits account in comparison to rest of all across all

the three districts including total. The surveyed data shows generally more percentage

18 The Government of Andhra Pradesh passed an ordinance on 15th October 2010 to protect the borrower from exploitation by the MFIs in the state.


of household of Mahabubnagar, Khammam and overall scenario are keeping bank

account in Public Sector Bank, then Post Office, next RRB and then Co-operatives in

descending manner. In Warangal district more or less similar trend has seen, as Post

Office followed by Public Sector Bank, Co-operative Bank and RRB possesses

household bank account. In all three districts and total have more than 80 per cent

households’ bank account is in Public Sector bank and Post Office. Table 3.4: Break up for Savings accounts Districts % age of HH

having a Bank A/C

%age of HH having a Account in Private Commercial Bank

Public Sector Bank

RRB Co-operative Bank

Post office

Mahabubnagar 73.3 1.6 46.2 17.6 14.9 39.7 Khammam 68.2 0.9 44.8 14.2 11.1 42.2 Warangal 81.6 1.7 42.3 11.7 17.3 47.1 Overall 72.5 1.4 44.6 15.1 14.8 43.4


3.3.1. Reasons for Opening a Bank Account

It may be seen from Table 3.5 that 46.3 per cent of the households have started ‘to

receive government’ as the reason for opening bank account. 37.3 per cent have

started that to receive loan is the reason for opening bank account. The least

percentage of households only 0.6 per cent and 2.1 per cent are opening a bank

account showing the reason as for ‘receiving insurance’ and to ‘receive salary’

respectively. Table 3.5: Most stated Reasons of Opening a Bank A/C

Reason Percentage of Households

To receive Loan 37.3 Receive Govt. benefits 46.3

Receive Insurance 0.6 Receive Salary 2.1

Saving 13.7 Source: Field Survey


3.4. Borrowing 3.4.1. Motivations for Borrowing

Rural households borrow money for consumptions or investment purpose. Borrowing for

consumptions needs are classified into the ex ante strategy for big consumptions needs

and ex-post dealing with drop in income or unexpected expenditure. Sample

households tend to borrow money for the ex-post consumption smoothing, such as daily

consumption, medical expenditures and so on rather than for the ex-ante borrowing for

buying durable goods.

When household borrow money for consumption, they seem to choose borrowings from

informal lenders, because informal lenders usually care for borrowers’ immediate needs

whereas formal lenders evaluate productivity of borrowers’ project. Therefore, many

households approach formal lenders when they need resources for investment

purposes. On the other hand, when loan is used for medical expenditure or buying

durable goods and the amount is big, loans from friends and relatives are actively

chosen. If loan is used for unprofitable purposes and the need is small, they tend to

borrow from SHGs. When loan purpose has characteristics both as investment and

consumption, like loan for education and housing, formal and informal loans are used.

Some households borrow money from informal sources even though they use it for

investment and it could suggest two possible situations; one is lower effective cost of

informal loans and the second one is constraints in accessing cheap formal loans.

3.4.2. Sources of Informal Borrowing

Table-3.6 shows share of the different sources of informal borrowing in the studied area

by different occupational categories. It is clearly observed form the surveyed data

presented in Fig-3.1 below that the totality and for all across the three districts, the main

sources of informal borrowing is the moneylender possessing the highest share for all

three districts (more than 40 per cent). While the second source is friends and relatives

whom all occupational groups depends for borrowing followed by landlord and lastly


from the businessman/traders. All the three studied districts have jointly more than 70

per cent informal sources of borrowing from moneylender and friends/relatives, while 30

per cent borrowing share depends on landlords and businessmen and/or traders. For

the landless labourers, marginal farmers and small farmers the average percentage

shares of borrowing from the prime source money lenders of all three districts in Andhra

Pradesh are 48.9 per cent, 45.3 per cent and 38 per cent respectively. But the prime

source for the large farmers, businessmen and others is friends and relatives. This

source has the highest borrowing average percentage share of districts’ for large

farmers at 42.3 per cent, for businessmen 42.8 per cent and for others 39.13 per cent.

The least percentage share of all occupational groups depends on

businessman/traders.

Table 3.6: Share of different sources of Informal Borrowing in the Studied Area

Occupational Categories

Of the Total Informal Borrowing %age coming from

Money lender Landlord

Friends& Relatives

Businessman/ traders

Landless Labourers

M 41.6 16.1 36.1 6.2 W 46.2 12.3 34.9 6.6 K 58.9 18.3 19.8 4.0

Marginal Farmers

M 36.9 26.9 23.6 12.6 W 42.7 18.2 16.8 22.3 K 56.3 21.3 12.6 9.8

Small Farmers

M 32.2 18.2 38.9 10.7 W 29.2 24.2 41.4 5.2 K 52.6 26.8 13.3 7.3

Large Farmers

M 22.5 18.2 47.6 11.7 W 41.2 11.7 38.2 8.9 K 27.7 19.6 41.1 11.6

Business

M 51.1 14.2 32.9 1.8 W 29.2 18.6 47.1 5.1 K 18.2 22.7 48.6 10.5

Others

M 39.1 16.8 33.3 10.8 W 26.2 26.1 40.2 7.5 K 33.9 22.1 43.9 0.1

Overall

M 40.6 17.9 32.6 8.9 W 43.2 14.6 36.4 5.8 K 44.1 13.5 37.2 5.2

M= Mahabubnagar, W= Warangal, K=Khammam , Source: Field Survey


Figure 3.1: Percentage share of the different informal source of borrowing by occupational categories

Source: Table 3.4

3.4.3. Extend of Magnitude of Indebtedness

To measure the extend of magnitude of indebtedness Table 3.7 shows percentage of

indebtedness and average amount of debt per sample household (all sources) in rupee

terms for all across the three studied districts by their occupational categories. For

entire AP the average debt per household annually is Rs. 23,455 and 80.1 per cent

households are under indebtedness. It has seen that all the three districts’ indebtedness

is more than 80 per cent, while Warangal has topped in the extend of indebtedness for

both in terms of percentage (83.3 per cent) and average debt amount (Rs.24,789)

leaving behind marginal gap to Mahabubnagar and Khammam. There is high extent of

indebtedness for all farmers; large (91.5 per cent), marginal (90.2 per cent) and small

(88.4 per cent), including landless labourers (89.3 per cent). The average debt amount

per sample household of large farmers (Rs.41,223) for overall AP is more than rest of

all occupational structures’ household while, although the landless labourers shares a

high percentage of indebtedness the debt amount (Rs.14,762) is less then rest. Also it


has observed from this survey that there is highest indebtedness in all three districts in

respect of by landless labourers such as Warangal (94.4 per cent), Khammam (92.6 per

cent) and Mahabubnagar (88.7 per cent). However, their average debt amount per

sample household is lowest if we exclude others category; Mahabubnagar (Rs.12,325),

Khammam (Rs.14,522) and Warangal (Rs.16,236).

Table 3.7: Extend of Magnitude of Indebtedness Districts Occupational Categories Percentage of

indebtedness

Average Amount of debt per sample household (All sources) in Rs.

Mah

abub

naga

r Landless Labour 88.7 12,325 Marginal Farmers 83.3 18,942 Small Farmers 62.5 27,369 Large Farmers 86.6 42,871 Business 63.3 28,412 Others 61.3 7,241

Overall 82.4 23,151

Kha

mm

am

Landless Labour 92.6 14,522 Marginal Farmers 91.2 21,363 Small Farmers 86.7 24,568 Large Farmers 89.2 36,277 Business 66.2 19,852 Others 29.3 9,223

Overall 80.2 21,342

War

anga

l


Overall 83.3 24,789

Ove

rall

AP


Overall 80.1 23,455 Source: Field Survey


3.5. Distribution of Outstanding loan from different sources

As shown in Table-3.8 if we look at the distribution of outstanding loan from different

sources, for the overall districts, highest loan outstanding share is derived from informal

sources (43.9 per cent) followed by SHGs (23.1 per cent), formal sources (21 per cent)

and MFIs (11.4 per cent). In all three districts major percentage of outstanding loan is

from informal sources, Mahabubnagar (42.1 per cent), Khammam (51.3 per cent) and

Warangal (39.7 per cent). On the other hand MFIs’ outstanding loan percentage is

lowest among the different sources for all three districts, Mahabubnagar (8.2 per cent),

Khammam (10.5 per cent) and Warangal (16.6 per cent).

Table 3.8: Distribution of Outstanding loan from different sources

Districts Out of the total amount of loan outstanding %age coming from

Formal sources

Informal sources

SHGs MFIs

Mahabubnagar 22.3 42.1 27.4 8.2

Khammam 17.6 51.3 20.6 10.5

Warangal 24.3 39.7 19.4 16.6

Overall 21.6 43.9 23.1 11.4


3.6. Access to Insurance Field survey data in Table-3.9 show percentage of household having insurance by

different kind of insurance in three districts of Andhra Pradesh. Broadly, in all three

districts more than 45 per cent household have been going for insurance and having

dominantly ‘life insurance’ in comparison to health, crop/weather, livestock, and

accidental insurances. Overall there are 50.1 per cent of households having insurance,

comprising 46.4 per cent for life insurance, and jointly less than 3.5 per cent household

comes under four kinds of insurances such as: health, crop/weather, livestock and

accidental. Mahabubnagar district’s household is having highest of all 56.5 per cent for

insurance, which comprises 52.3 per cent for life insurance and least is for livestock

insurance 0.2 per cent while health, crop/weather, accidental all insurances are less

than 2 per cent. Khammam district’s 46.2 per cent household has been interested for


insurance comprising three different kinds of insurances such as 44.6 per cent for life

insurance, 1.2 per cent for health, 0.3 per cent for crop/weather and 0.2 per cent for

both livestock and accidental insurances. In Warangal district there are 47.1 per cent

households covered under life insurance, 1.4 per cent in health insurance, and less than

1 per cent households coming under accidental, livestock and crop/weather insurance

out of 49.4 per cent insured household in whole district. Table 3.9: Insurance District Percentage

of household having any kind of insurance

Percentage of household having Life

Insurance Health

Insurance Crop/weather

Insurance Livestock Insurance

Accidental insurance

Mahabubnagar 56.5 52.3 2.1 1.1 0.2 0.6 Khammam 46.2 44.6 1.2 0.3 0.2 0.2 Warangal 49.4 47.1 1.4 0.4 0.6 0.8 Overall 50.1 46.4 1.8 0.6 0.4 0.6


3.7. Some Characteristics of Formal Borrowing and Repayment Table-3.10 explains some characteristics of borrowing and repayment of formal loan

among borrower households in study villages of Andhra Pradesh. Borrower households

are categorizes in respect of their size class. Overall there are 291 borrowers

households. There are 36.7 per cent of household who have repaid loan and 63.7 per

cent of household are having outstanding loan, while of the total loan received, 32.5 per

cent loan have been repaid and 67.5 per cent of loans are outstanding. In different

occupational classes, while the landless labourers, marginal farmer and small farmers

jointly posses 80 per cent of total number of household this group has only 35 per cent

borrowers, where as large farmers and business had 41 per cent borrowers although

their member constituted only 14 per cent of the households. All categories of

household outstanding loan are more than repaid loan. Small farmer group household

borrower topped in repaying loan touching 48.2 per cent of household while the landless

labourers group has least percentage of household (28.6 per cent) having repaid loans.

The same positions are held by these two groups in respect of outstanding loan. Of the


total loan received only the small farmers’ group percentage of loan repaid (61.2 per

cent) is more than their outstanding loan (38.8 per cent). On the other hand overall the

remaining outstanding loan is greater than their respective loan repaid. 3.8. Some Characteristics of Informal Borrowing and Repayment Table-3.11 explains some characteristics of borrowing and repayment of informal loan

among borrower households in study villages of Andhra Pradesh. Borrower households

are categorized in respect of their size class. Overall there are 656 numbers of

borrowers households. There are 93.7 per cent of household having outstanding loan

while of the total loan received 31.1 per cent loan are repaid and 68.9 per cent of the

loan are outstanding. In different occupational classes the landless labourers, marginal

farmer and small farmers jointly posses 80 per cent of total number of household.

Overall from the total loan received only 31.1 per cent of loan has been repaid and rest

68.9 per cent are outstanding.

Table 3.10: Some Characteristics of Borrowing & Repayment of Formal Loan among borrower households in study villages of Andhra Pradesh Size Class (in acre)

No of HH

No. of Borrower

HH in the Group

Avg. Amount Borrowed per Borrowing HH

(In Rs.)

Avg. Amount Repaid per

Borrower HH (In Rs.)

% age of HH Repaid Loan

Avg. Amount of

Outstanding per Borrower

(In Rs)

% age of HH Having

Outstanding Loan

Of the Total Loan Received

% age Loan

Repaid

% age of Loan

Outstanding Landless Labour 149 28 8670 4760 28.6 4179 71.4 40.8 59.2 Marginal Farmer 257 94 9711 5871 43.6 4890 56.4 43.6 56.4 Small Farmer 169 79 10122 3960 48.2 5320 51.8 61.2 38.8 Large Farmers 52 49 70625 25309 41.8 41670 78.8 26.4 73.6 Business 49 32 17726 11225 24.2 6528 75.8 28.6 71.4 Others 44 09 12624 6209 33.3 5109 66.7 17.3 82.7 Overall 720 291 9206 3610 36.7 5926 63.3 32.5 67.5 Source: Field Survey

Table 3.11: Some Characteristics of Borrowing & Repayment of Informal Loan among borrower households in study villages of Andhra Pradesh

Size Class (in acre)

No of HH

No. of Borrower

HH in the Group

Avg. Amount Borrowed per Borrowing HH

(In Rs.)

Avg. Amount Repaid per

Borrower HH (In Rs.)

Avg. Amount of

Outstanding per Borrower

(In Rs)

% age of HH Having

Outstanding Loan

Of the Total Loan Received

% age Loan

Repaid

% age of Loan

Outstanding Landless Labour 149 146 17681 3209 14313 96.2 20.1 79.9 Marginal Farmer 257 244 21302 7624 13625 94.6 18.7 81.3 Small Farmer 169 157 14225 6111 8102 87.7 27.3 72.7 Large Farmers 52 41 6712 4118 2818 91.8 34.6 65.4 Business 49 36 1026 603 458 70.6 46.2 53.8 Others 44 32 3212 1519 1870 44.1 21.2 78.8 Overall 720 656 11114 3718 7209 93.7 31.1 68.9 Source: Field Survey


3.9. Preferences for Moneylenders

The advances from institutional sources increased more than three times in real

terms since the 1990s but until now, it could not completely eliminate the

borrowing from non-institutional sources especially by farmers because credit

from institutional sources is fraught with many inadequacies such as amount,

easiness, timeliness and with other strings of formalities/procedures attached to

it. In the study area on an average the borrowers has to spent 1 to 2 hours to

reach the formal sources like Bank. The average distance ranges from 5 km to

18 km from their villages. Again the borrowers have to make many trips to

complete formalities required for obtaining institutional loans and spend extra

money other than the interest charged by these agencies, which is almost

negligible in the case of non-institutional sources. The formal institutions offer

poor quality service through inadequately manned branches under a mandatory

rural branch posting policy with a short-term stay, which gives little time to the

staff to develop knowledge about the area and the people. Also the loan approval

takes a long time to come to the borrowers and due to this reason the borrowers

in rural areas never rely on the formal sources and ultimately prefer the

traditional moneylender at their own locality or village.

3.10. Multiple Borrowing

The average number of loan from different sources for the studied districts

indicates the extent and multiple borrowing (Table 3.12). It has been found from

the survey that around an average of four loans are borrowed per households at

overall level in Andhra Pradesh, with Mahabubnagar having topped with 4.6,

followed by Warangal (4.5) and Khammam (3.9). Among the different sources of

borrowing, the average number of loan from all formal sources is lowest (less

than one loan) for overall Andhra Pradesh including the three districts.

Mahabubnagar has maximum number of loan in average from all formal sources,

while Khammam district’s average number of loan borrowing is highest from all

informal sources.


Table: 3.12. Extent & Magnitude of Multiple Borrowing Districts Average

number of loan per households (all sources)

Average number of loan from all Formal sources

Average number of loan from all Informal

Average number of loan from SHGs

Average number of loan from MFIs

Mahabubnagar 4.6 0.9 2.4 1.6 2.9 Khammam 3.9 0.7 2.8 1.1 2.2 Warangal 4.5 0.6 2.6 1.3 2.5 Overall 4.4 0.8 2.5 1.3 2.4


3.11. Over-lending It is difficult to define the tipping point beyond which a borrower over-borrows.

Clearly when borrowers default involuntarily they have over borrowed, but not all

over-borrowing leads to default, as when a borrower sells a valuable asset, or cut

back on educational expenses, or is forced to work when ill in order to meet the

next weekly installment. According to Ghate (2007)19 MFIs were dumping money

on borrowers’, who were finding it difficult to repay and having to borrow from

moneylenders at a higher cost in order to stay in good standing with the MFI.

This is an extremely complicated issue calling for much further research and in

depth analysis.

There could be many motivations for multiple borrowing. A single source might

not meet all of the client’s credit needs. Even if it does, the clients may join

multiple sources because interest rates may be lower in the second source, loan

products may not be structured appropriately for the needs of specific client

businesses or different sources may offer different products that the client needs,

or the client has a second option in case of default to the first source. As regards the usage of the loan, an individual source like MFI’s loan might be

too small for a higher level of project investment and hence the client may need

multiple loans from different sources (may be formal or informal or MFIs) to stitch

together a larger loan size. A mid-term supplemental loan could be used to

19 See Chapter-4 of Prabhu Ghate (2007): Indian Microfinance: The Challenges of Rapid Growth, Sage Publication, New Delhi


augment capital, especially for Businessman or traders. These could be called

opportunity-borrowing. Distress-borrowing would include borrowing due to an

emergency like repair of house, death etc. or to repay old debt. Alternate reasons

could be that he or she is borrowing for consumption or simply reducing cost of

borrowing by shifting away from more expensive sources of credit such as

moneylenders. 3.12. Profile of MFI loan borrowers

It is revealed from the Table-3.13, showing profile of MFIs loan borrowers that

overall in Andhra Pradesh there are 34.9 per cent MFIs loan borrowed by

landless borrowers, SCs, STs with 31.8 per cent and 26.4 per cent respectively

followed by Marginal farmers (27.1 per cent), small farmers (18.6 per cent) and

large farmers (11.8 per cent) are also having significant share among loan

borrowers. Business involved households (6.2 per cent) and minority groups (6.4

per cent) apparently required less borrowing as found from the field survey.

Similar pattern is observed in respect of MFIs loan borrowers in all three districts,

with slight variation in their percentage share magnitudes.

Table 3.13: Profile of MFI loan borrowers Districts

Landless labourers

Marginal Farmers

Small Farmers

Large Farmers

Business Others

ST

SC

Minority

Mahabubnagar 37.2 26.1 17.8 11.3 7.4 0.2 24.1 36.9 7.1 Khammam 38.1 31.6 19.4 4.6 4.9 1.4 33.1 28.7 5.1 Warangal 31.3 22.7 20.4 17.2 6.8 1.6 22.9 34.4 6.8 Overall 34.9 27.1 18.6 11.8 6.2 1.2 26.4 31.8 6.4


3.13. Reasons for using MFI loan

Microfinance has made significant impact on household allover the Andhra

Pradesh. In this context, Table-3.14 states that most vital reason for using MFI

loan is that it is available sitting at their home i.e. getting at door step as

expressed by 99.3 per cent households. The second most crucial reason

according to the data shows that MFI loan has no transaction cost, opinioned by


80.2 per cent households. No collateral required and easy for repayment are

another two important reasons behind the MFI loan being dominant in studied

area. Last but not the least, according to 11.2 per cent households low interest

rate is also one of the reason for taking MFI loan. Table 3.14: Most Stated Reasons for using MFI loan

Reason Percentage of Households

Getting at door step 99.3% No transection cost 80.2%

No collateral required 62.3%

Easy for repayment 57.2%

Low interest rate 11.1%

Source: Field Survey Note: Total may not be equal to 100% as respondent chosen more then one option Overall the rate of multiple borrowing is a common in almost all studied villages

in Andhra Pradesh. However it is difficult to explore the tipping point of over

landing form a borrower point of view.


CHAPTER- IV Utilization, Repayment & Collection Practices

Proper utilization of the loans has a favourable influence on the ability of the

borrower to generate additional income from the investment. Productive

utilization of the borrowed funds generally increases the loan repaying capacity

of the borrowers. This improves the chances of timely recovery of loans by the

loan agencies. Higher the productive utilization of loans higher will be the loan

repayment. Higher the loan repayment in time; better will be the recycling of

scarce loanable funds with the Institutional agencies. The health of the

institutional agencies depends on this formula. The usefulness of institutional

finance is to be judged not merely on the quantum of credit pumped into the

sector, but on how far it is utilized properly by the borrowers. The extent to which

it is utilized for productive purpose and the extent of its deviation from the

stipulated purpose deserve the attention of all those concerned.

The financing institutions are to be more concerned with the creditworthy

purpose rather than credit worthy person; feasibility of the project than the

availability or adequacy of security; the end use of the credit apart from the end

result of it. The use of credit for productive and unproductive purposes depends

upon the nature of utilization of the credit. If loan amount is utilized for productive

purposes, it may generate its own means of repayment. But diversion creates

problems and ultimately restricts the repayment. 4.1. Sources wise Utilization of Loan

The utilization of loan by different sources, presented in Table-4.1, reveals that

agriculture consumes maximum loan from formal sources (60.3 per cent), while it

least depends on MFIs (9.1 per cent). The highest percentage of loan used for

agricultural purpose is from formal sources and loan used for self consumption

has shared highest in rest three different sources (MFIs, SHGs and Informal).


From all four sources the lowest percentage of loan used is for education

purposes. Loan taken out for self consumption, debt repayment and

health/medical purpose are in between 10 to 20 per cent from formal sources.

Business/investment, life cycle events such as birth, death, festival,

emergency/repair of house, purchase land, education, purchase of consumer

durable or household asset, buying livestock found minor percentage, less than

10 per cent individually from all different sources. Table 4.1: Usage of Loan by different sources (in %age)

Use

I

Agriculture

1

Business/Investment

0

Self Consumption

3

Debt Repayment

2

Health/Medical

2

Marriage

1

Other life cycle event

(birth, death etc.)

5

Festival

2

Emergency/Repair of

house

1

Purchase land

0


Education

0

Purchase of

Consumer Durable Or household Asset

0

Buy livestock

7


Note: Total may be greater than 100% as loans may be used for more than one purpose

It is clear that households have ut il ized the loan for a variety of

purposes including for self consumption, social, medical and

repayment of past loan. It appears that the amount of loan obtained

from own saving, group loan and other formal sources is not enough

for many households.

As discussed in the previous chapters, it has been found that a

majority of the household are members of SHG and have borrowed

from the SHG funds as well as from bank through group. In case of

later the group leader has obtained credit from the bank and

distributed the same to the members according to their demand. The

interest rates paid on these loans are very low in comparison with

the rates prevalent in the informal credit market in the study area.

The borrowers have uti l ized the loan for a variety of purposes

including for productive act ivit ies. As the size of loan borrowed from

these sources is small many of the members belonging to dif ferent

groups have borrowed from the informal sources.

Table 4.2: Institution wise classification of Utilization of Loan Amount Particulars CB RRBs Co-

operatives Public sector Bank

SHGs MFIs

No of Borrowers (in Nos) 33 84 110 181 411 156 Mean Credit availed (in Rs.) 4913 6061 7141 4586 1265 3241 Mean Credit Utilized (in Rs.) 2456 3152 4568 2114 1024 2566

Mean Credit misutilized (in Rs.)

2518 3122 3024 2356 289 815


Percentage of loan utilized 65 58 63 69 90 46 Percentage of loan misutilized 35 42 37 31 10 54

Mean loan outstanding 10256 12650 7232 11632 2715 8245


Table- 4.2 gives rough idea on the mean credit availed by different sources like

Commercial Banks, RRBs, Co-operatives, Public sector banks, SHGs and MFIs.

It has been observed from the above table that in most of the formal sources the

purpose for which the credit was taken has not been utilized and major portion of

the credit has been misutilized or utilized for consumption purpose or for

payment of old debt. One of the major problems of the formal credit is the

misutilization of loans for the purpose other than the noted ones which become

the main reason for the non-repayment of loan by most of the borrowers.

Usually short term productive finance is misutilized for consumption purpose.

This practice of misutilization is minimized in the case of the medium and long-

term loans because of the nature of the utility of the loans. But in case of short-

term loans, such practice is inevitable. It could be minimized but not completely

avoided.

4.2. Repayment

Repayment performance is basically dependent on the level of

income generated by the households from the activity carried out,

att itude and motivation of persons towards repayment, monitoring by

the agencies providing loan. The percentage of loan repaid from

dif ferent sources is given in the table-4.3.

Table 4.3: Some Characteristics of Repayment by different sources

Occupational Category

Formal Informal SHG MFI % age Loan

Repaid

% age of Loan

Outstandin

% age Loan

Repaid

% age of Loan

Outstanding

% age Loan

Repaid

% age of Loan

Outstandin

% age Loan

Repaid

% age of Loan

Outstandin


g g g

Landless Labour

40.8 59.2 20.1 79.9 51.3 48.7 52.2 47.8

Marginal Farmer

43.6 56.4 18.7 81.3 56.7 43.3 44.2 55.8

Small Farmer 61.2 38.8 27.3 72.7 65.3 34.7 69.8 30.2

Large Farmers 26.4 73.6 34.6 65.4 80.1 19.9 67.3 32.7

Business 28.6 71.4 46.2 53.8 42.5 57.5 54.2 45.8

Others 17.3 82.7 21.2 78.8 27.6 72.5 26.1 73.9

Overall 32.5 67.5 31.1 68.9 59.4 40.6 48.7 51.3


4.3. Collection Practices by MFIs What is Fair Practices?

According to the Sa-Dhan’s Code of Conduct Fair Practices relates to sales and

marketing of products and services (avoidance of mis-selling, cross selling,

bundling of unwanted products such as insurance), recovery practices

(avoidance of stressful coercion), customer based loan appraisals (including

lender’s liability for wrong credit decisions that result in excessive debt),

avoidance of use of agents, centre leaders, etc., in credit processes and

incentivizing responsible staff behavior.

MFIs should be committed to follow fair practices built on dignity, respect, fair

treatment, pursuance and courtesy to clients. It will also provide micro finance

services to low income clients irrespective of caste or religion. It should provide

services using efficient and cost effective methods. It should not obtain any

documents other than what are required as per KYC norms from clients. MFIs

should not obtain any tangible collateral security except for housing loans under

Microfinance. It will release all securities on repayment of all dues by the clients.

4.4. Lending activity of MFIs in Andhra Pradesh

The MFIs in A.P are mainly engaged in lending activity and depend on

borrowings and investment as sources for funds for lending. Since such funds


have high cost, the interest rates on loans given to poor are also on higher side.

This raises the regulatory issue of whether interest rates charged by MFIs should

be free and left to market forces or prescribed by the Regulator. Challenges for

regulation of lending activities by MFIs are: Regulation of interest rates &

Ensuring observance of Fair Debt Collection Practices by MFIs.

A series of suicides by borrowers in Andhra Pradesh became a political twister or

MFIs and the blame‐game ensued furiously. First it was high interest charged by

the MFIs and then they were blamed for “coercive recovery” method deployed

which alleged to have triggered series of suicides in AP. To stop further loss of

life, the AP government rushed in with an ordinance imposing restrictions on

MFIs and threatening criminal proceedings against coerced recovery. While the

MFIs borrowed funds from banks at 9‐14 per cent, they alleged to have charged

interest rate between 32 and 42 per cent, to provide finance to the poorer

sections of the society such as artisans, farmers and small time businessman.

However during the survey we have not found many cases where the MFIs

practice any coercive methods of recovery. As reported by some respondent

after the AP Government passed an ordinance the staffs of MFIs never use any

offensive language for those even who are not paying the loan on timely.

4.5. Transparency & Collection Practices by MFIs In so far the extent and magnitude of borrowing loan from Micro Finance

Institutions was concerned, Table-4.4 shows that the different aspects of

transparency by MFIs in all three districts and overall Andhra Pradesh. Around

60 per cent of overall and all three districts households’ opinion is that MFIs

staffs do not disclose or explain about all the terms and conditions to the

borrowers while taking loan. Another significant observation is that more than 90

per cent of all three districts including overall says they are not provided any

sanction letter or any other documents mentioning about the rate of interest,

mode of charging interest, levy of any other charges, terms of repayments, etc,

after getting a loan from MFIs. Again, more than 70 per cent from all three

districts and overall denies that any kind of information from the MFI on the rate


of interest offered on the thrift services. Likewise, major portion that is more than

90 per cent of households in Mahabubnagar, Khammam and Warangal do not

get any information related to the premium and other fees being charged on

insurance and pension services from MFIs. After getting loan also they have not

got any periodical statements of borrowers’ account by means of a passbook or

any other mechanism. Table 4.4: Transparency by MFIs Districts While taking loan,

Is the MFIs staffs disclose before you or explain about all the terms and conditions (including charges, if any)?

After getting a loan from the MFI, have you got the sanction letter or any other document clearly indicating the rate of interest, mode of charging interest, levy of any other charges, terms of repayments, etc.?

Have you got any information from the MFI on the rate of interest offered on the thrift services?

Have you got any information related to the premium and other fees being charged on insurance and pension services?

After getting a loan, have you got any periodical statements of your accounts by means of a passbook or any other mechanism?

YES NO YES NO YES NO YES NO YES NO Mahabubnagar 41.1 58.9 8.1 91.9 27.8 72.2 6.3 93.7 4.6 95.4 Khammam 33.3 66.7 7.4 92.6 12.3 87.7 5.5 94.5 3.2 96.8 Warangal 39.2 60.8 9.6 90.4 23.6 76.4 4.1 95.9 3.6 96.4 Overall 38.1 61.9 8.6 91.4 21.2 78.8 5.4 94.6 4.1 95.9 Source: Field Survey


CHAPTER- V

Major Findings & Conclusion

This section provides a brief summary of the main findings of the study. This

study analyses the field based data on financial position of the rural households

from twenty four villages located across three districts (i.e. Mahabubnagar,

Khammam, and Warangal) of Andhra Pradesh. It was found from the analysis

that overall in all the three districts more than 80 per cent of rural households are

indebted. However across the occupational categories in case of landless

labourers and Marginal farmers it is almost 90 per cent.

The amount of indebtedness was highest in Warangal district. Large farm

households are also heavily indebted to different sources. The share of

moneylenders is maximum (44.1 per cent) followed by friends & relatives in the

total informal loan borrowed by the rural households. Around 44 per cent of the

loan outstanding is availed from informal sources followed by 23.1 per cent from


the SHGs, 21.6 percent from the formal sources and 11.4 per cent from the

MFIs.

The marginal and small farmers were also heavily indebted and they had a lower

share of the institutional loans than the other larger farmers. Expenditure on

social functions such as different life cycle events like birth, death & marriage are

directly associated with the amount of debt.

It has been found from the survey that around an average of four loans are

borrowed per households at overall level in Andhra Pradesh, while

Mahabubnagar has topped with 4.6, followed by Warangal (4.5) and Khammam

(3.9).

The overall conclusion is that the rural households in Andhra Pradesh are

severely trapped in the clutches of indebtedness. The present situation of high

indebtedness among the rural households especially the landless labourers and

marginal farmers is a cause for concern for policymakers, politicians and

academicians. It warrants multi-pronged strategies and measures for reducing

indebtedness in the short run and increasing the income of rural households in

the long run by generating employment and increasing productivity in the state.

To improve the financial condition of rural households, especially those who are

resource poor measures should be taken to regularize and continuously monitor

the functioning of non-institutional sources of finance. Secondly the functioning

and lending procedure of the commercial banks and cooperatives should be

strengthened. Insurance should always be attached with all kind of borrowing,

especially in the case of MFIs.

--------------


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Annexure Annexure 1:

1. List of Sample Villages (Mehebubnagar) Sl No Name of the Village Mandal20 No of Sample HHs 1 Gajulateta Addakal 30 2 Amarachinta Atmakur 30 3 Badepalle Jadcherla 30 4 Burgula Shadnagar 30 5 Sankalmaddi Addakal 30 6 Bureaddipalle Jadcherla 30 7 Chegur Kothur 30 8 Gundlapotlapalle Balanagar 30 Total 240

2. List of Sample Villages (Khammam) Sl No Name of the Village Mandal No of Sample HHs 09 Nelakondapalli Nelakondapalli 30 10 Buddharam Nelakondapalli 30 11 Painampalli Nelakondapalli 30 12 Raya guden Nelakondapalli 30 13 Kodumuru Chintakani 30 14 Thatipudi Wyra 30 15 Vadanam Chintakani 30 16 Venkataya Palam Khammam 30 Total 240

3. List of Sample Villages (Warangal) Sl No Name of the Village Mandal No of Sample HHs

20 A ‘Mandal’ is the basic unit of the district which covers about 2 lakh population in a given geographical area.


17 Venkatadripet St. Ghanpur 30 18 Devanoor Dharma Sagar 30 19 Labarthy Wardhannapeta 30 20 Chilukodu Dornakal 30 21 Atmakur Atmakur 30 22 Pegadapally Hasan Parthy 30 23 Paluvelpula Hanamkonda 30 24 Nekkonda Nekkonda 30 Total 240 Total Sample 720 Annexure 2: Classification of Occupational Categories Category Criteria

Landless Labourers

Holding no Agricultural land and depends on Wage Labour work (including NREGA) for more than 6 months in a year

Marginal Farmers Owned < 1 acre of agricultural land holding

Small Farmers Owned 1.01 acre to less then 4 acre of Agricultural land

Large Farmers Owned More than 4 acre of Agricultural land

Business & Salaried

Households major income coming from Shop keeping, Petty Traders & Salaried/Job etc.

Others Households not falling under any of the above category

Annexure 3: Name of Selected MFIs working in AP Districts Name of the MFIs working

Mehebubnagar SHARE, ASMITA, SKS, NANO, Spandana, Siri Micro Finance Society, Navajeevan Rural Development Society

Khammam SKS, Asmita, SHARE, Spandana

Warangal SKS, Spandana, Sharemoola, Asmita, L&T, Swayam Krushi, Share Micro Finance Society


Annexure 4: Household Questionnaire

RURAL INDEBTEDNESS AND PRACTICES OF MFIS IN ANDHRA PRADESH

(This Information will be used for research purpose only and kept confidential) 1. Identification

1.1 Name of the Village

1.2 Mandal 1.3 Block 1.4 District

1.5 Name of the Respondent

1.6 Name of the Head of the Household

1.7 Father’s Name

1.8 Religion

1.9 Caste 2.10 Sub-Caste

2. Socio-economic Status

2.1 How long the household has lived in the village, give an brief notes on the history of migration, if any

2.2 Residence quality (Please tick) Pucca Semi-Pucca Tilled Thatched

2.3 Sources of Drinking water

2.4 Do you have access to electricity..? Yes/No

2.5 Type of fuel used for Cooking.

2.6 Does your house include a latrine? Yes/No

SCHEDULE NO:


3. Demographic Profile of the family Sl. No

Members (Head name first)

Relationship with H.H

Marital Status

Gender Age Education Occupation

Primary Subsidiary

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 1 2 3 4 5 6 7 8 9 10

Codes: 3.3: Head-1, Spouse-2, Son/daughter-3, Son/daughter in law-4, Grandchild-5, Mother/Father-6, Brother/Sister-7, Brother/Sister in law-8, Uncle/Aunty-9, Mother/Father in Law-10, Nephew/Niece-11, 3.5: Male- 1, Female- 2, 3.8: Own farm activities-1, Agricultural Labour-2, Non-agricultural labour-3, Animal rearing-4, Collection of NTFP and sale-5, Petty trade/business-6, Trade/business of Forest based products-7, Wood cutter-8, Masonry workers-9, Driver-10, Salaried employment (Govt.)-13, Salaried employment (non-government)-14, Pension holder-15, Migrant Workers (Seasonal)-16, Migrant Workers (Whole year)-17, Household activities-18, Doing Nothing (Old age, illness, disable)-19, Studing-20, Others-21

4. Land detail

Sl. No. Land Particulars Area in acre Current Value (in Rs) 4.1 Total Owned land 4.2 Total Operated land 4.3 Encroached Land (Land without legal paper) 4.4 Land Leased in 4.5 Land Leased out 4.6 Land Mortgaged in 4.7 Land Mortgaged out 4.8 Total Irrigated Land 4.9 Total Non-irrigated land 4.10 Cropped Land 4.11 Fallow Land (Land not seeded for a season) 4.12 Waste Land (Land not suitable for Cultivation)

5. Physical Assets (List the Major Physical Assets other then Land)

Agricultural Assets Consumer Durable Livestock Items Numbers Current

Value in Rupees

Items Numbers Current Value in Rupees

Items Numbers Current Value in Rupees


6. Financial Assets 6.1. Do you possess any financial assets like Bank Account, Bond, Security, fixed deposits etc.? (1) Yes (2) No 6.2. If Yes then specify the assets & value of the assets? 6.3. Returns from the assets 7. Household Annual Income from different sources

Sl. No

Sources Amount in Rupees

1 Agriculture Income during last years (Amount of output in Kharif* Price at the time of selling plus output during Rabi Plus price of all crops )

2 Wage Income during different months of all workers in the family. (Agricultural plus non-agricultural labour work)

3 NREGA Work (All members of the HH) (Mention the Number of days worked during last year)

4 Income from Livestock, such as goat, cow’s milk, poultry etc.

Forest collection (NTFPs)

5 Service/Job

6 Professional/ Business

7 Old age pension and any subsidy received from state

8 Any other income during the year

9 Total Annual Income of the HH

8. Consumption pattern of household (selected items) (monthly)


9. Expenditure on specified items A. Family expenditure (Expenditure since last 2-3 years)

Sl. No.

Items Amount Month in which the expenditure incurred

Sources of fund

1. Construction and repair of residential houses

2. Purchase of utensils and furniture

3. Social functions (Marriage/ Funeral ceremonies etc.)

4. Educational expenses

5. Medical expenses

B. Other expenditure (Since last 2-3 years) Sl. No.

Items Amount Month in which the expenditure incurred

Sources of fund

1. Repayment of old debt

2. Any other

10. Borrowing of loan from formal sources

A. Loan from formal & semi-formal institutions

Sl. No.

Items Source of supply From PDS

Price per unit

Time of buying

Source of funds Home

produced Purchased from market

A Food items 1. Cereal 2. Pulses

3. Milk

4. Cooking oil

5. Salts/spices

6. Fish/mutton/ Eggs

7. Cooking wood/fuel

8. Tea/sugar/gur/milk products, baby food

9. Fruits and vegetables

B Clothing

C Footwear


Sl. No.

Source of loan Amount Borrowed

Purpose of loan Number of installment to receive the loan

Rate of interest

Borrowed Utilised for

1. Co-operative 2. RRB 3. Commercial Bank 4. LDB 5. MFIs 6. SHGs 7 Any others

B. Payment of formal loan

Sl. No.

Sources of loan Amount repaid

Month of repayment

Amount outstanding

Amount over-dues and since how long

1. Co-operative 2. RRB 3. Commercial Bank 4. LDB 5. MFIs 6. SHGs 7. Any others

11. Borrowing from informal sources A. Cash loan borrowed and fully repaid (since last 2 years)

Sl. No.

Source of borrowing (Specify)

Amount borrowed

Month of borrowing

Nature of security offered

Purpose of which utilized

Month of repayment

Details of repayment Principal Interest

1. 2. 3. 4.

* Specify the informal sources like Moneylenders, Friends, and Relatives etc. B. Cash loan outstanding

Sl. No.

Source of borrowing (Specify)

Amount borrowed

Month and year of borrowing

Rate of interest charged per month

Nature of security kept with creditor

Purpose of which utilized

Out standing loan Principal Interes

t Total out standing

1. 2. 3.

C. Kind loan borrowed and fully repaid (since last 2 years)

Sl. No. Items borrowing

Month of borrowing

Type of credit source

Quantity borrowed (in kg)

Price per unit at the time of borrowing

Purpose of loan

Month of repayment and price per unit

Detail of repayment

1. 2. 3.

D. Informal borrowing linked with labour, input and output market

Sl.No.

Amount borrowed

Time and month of borrowing

Agreement for future payment in terms of labour / sale of output

If labour, wage rate prevailing at the time of borrowing

Wage rate at the time of work

1 2 3 4 5

12. Kind loan outstanding 12.1 Whether the borrower got loan in kind and paid in cash? If yes, then price prevailing at the time of loan and the price prevailing at the time of repayment and the amount repaid. 12.2 Whether you have lost the security? If yes give details, amount, time, interest charged etc. Whether you have lost security earlier?


13 (a) Saving Information Sl Please list all Bank A/Cs held

by HH members with any of the institutions below 1. Commercial Branch 2. Public Sector Bank 3. RRB 4. Co-Op/PAC 5. Post Office

If No A/C then skip Question No: 12 (a) & 12 (b)

What is the name of the institution?

What is current balance in the A/C?

In the last two months how many times have you travelled to the branch to deposit or withdraw from the A/C?

Distance from the village

1

2

3

4

5

6

13 (b) Saving Information

Sl How do you generally reached this place? 1. Walk 2. Cycle/Scooter 3. Animal Cart 4. Bus/Auto 5. Tractor 6. Others (specify)

How much time do you spent to get to this source & do transactions there?

Do you have to maintain a minimum balance at all time? Yes/No

Why was the A/C opened? 1. To receive loan. 2. Receive Govt. benefits

(specify) 3. Receive Insurance 4. Receive Salary 5. Saving

1

2

3

4

5

6

14. SHG Information 14.1 Are anyone from your family is a member of a SHG? (1) Yes (2) No If Yes (Go to question number 14.2)


If No, Then reason for not joining SHGs? 14.2. What is the name of your SHG? ……………………………………………………………………

14.3. When was the SHG formed? (Month/Year) ……………………………………………………….

14.4. When did you join the SHG? (Month/ Year).....................................................................................

14.5. Have you ever hold any position in your SHG? (1) Yes (2) No

If yes, specify the position held (past or present) and duration of holding such position.

…………………………………………………………………………………………………………………. 14.6. How often does the group meet? (1) Weekly (2) Fortnightly (3) Monthly (4) Any other, specify

14.7. Do you attend the meetings regularly? (1) Yes (2) No

If no, why? 1) Work pressure

2) Meetings are held at inconvenient time

3) Meetings are convened at far away places

4) Nothing significant takes place in the meetings

5) Attend meeting only when the subject of discussion is of interest to me 6) Mother in-law attend meeting for me

7) Any other, specify

14.8. How do you characterise your involvement in the decision making or group meeting?

1) Not at all 2) Partially 3) To a large extent

14.9. What is the frequency of group savings? Rs……………… Per………………….

14.10. What is your present saving amount? Rs………...

14.11. From where do you make savings to the SHG?

1) Husband/son’s income 2) Own income 3) Any other, specify

If the response is (2), kindly specify the sources of income: ……………………………………

14.12. Have you raised any loans through SHG since last two years?

1) Yes 2) No

If yes, provide the following details.

Loans Loan amount (in Rs.)

Purpose of utilisation (CODE) Balance (in Rs.) A B C D

1st 2nd 3rd 4th 5th CODE


1) Consumption 2) Marriage 3) Other social functions* 4) House repairs or Construction 5) Repayment of old debts 6) Medical exigencies

7) Purchase of land 8) Land reclamation 9) Purchase of jewellery 10) Purchase of durable household

assets 11) Purchase of animals 12) Farm activities/ Purchase fodder

13) Education 14) Purchase farm equipments 15) IGA (self) 16) IGA (other family members) 17) Others, specify

* Includes rituals associated with funerals, thread ceremony, child birth, reaching of puberty of daughter, and other social obligations.

14.13. Are you member of any other group/ association? Yes [1] No [2]

If yes, state which one (name)? ………………………………………………………….

14.14. When did you become member of this group?

(1) After joining the SHG (2) Before joining the SHG

If the response is after joining the SHG, state why? ………………………………………

……………………………………………………………………………

14.15. Were you involved in any economic activities before joining the group?

(1) Yes (2) No

If yes, state (i) the name of the activity: ……………………………………………

(ii) Status: a) continuing b) terminated

(iii) If it is continuing, mention current net annual income (in Rs.): ……………….

14.16. Did you undertake any economic activities after joining the group?

1) Yes 2) No

If yes, state (i) the name of the activities undertaken:

1st) ……………………………………..

2nd) …………………………………….

3rd) …………………………………….

(ii) Nature of involvement

Indicators

1st 2nd 3rd 1) To a large extent 2) Partially 3) Not at all

1) To a large extent 2) Partially 3) Not at all

1) To a large extent 2) Partially 3) Not at all

Labour involvement Involvement in purchasing inputs Selling of products Direct involvement in accounting


(iii) Status of the activity

Activity If the activity is terminated, specify reasons. (Indicate the number of years the activity was sustained within bracket.)

If it is continuing, mention current net annual income (in Rs.)

1st 2nd 3rd

(15) MFI information (information related to borrowing from MFIs) 15.1 Have you taken any loan from any MFIs? (i)Yes (ii) No If Yes Ask how many loans do the household taken from the MFI? How loan taken since last 2 years from the same MFI? How may loan fully repaid? Ask a detail break up all MFI loan. (Ask question number 15.2 to 15.7 for each loan) 15.2 Name of the MFI? 15.3 Purpose of taking a loan from MFI? 15.4 Utilized for…………. 15.5 Month and year in which loan taken 15.6 Amount of loan………. 15.7 Rate of Interest charged………. 15.8 Do you have any loan outstanding with the MFI? (1) Yes (2) No

If yes Amount of loan outstanding…………..

(16) Collection practices of MFIs 16.1 What is the mode of repayment? (1) Weekly (2) Monthly


16.2 Total Number of installment 16.3 How the MFI staff collect installment from you? 16.4 Is there any abusive practices? Like (Please tick)

a) Adjusting overdues against the security deposits. b) Holding the weekly meeting infront of the defaulter’s house. c) MFI staff sitting infront of the defaulter’s house. d) Offensive language used by group leaders or staff. e) Putting up a loan overdue notice infront of a defaulter’s house f) Any other practices (specify)

16.5. Specific reason going for loan to MFIs 16.6 What are the problems you are facing currently to repay the loan taken from MFI? 16.6. Usage of multiple loans taken 1st Loan…………………. 2nd Loan……………….. 3rd Loan………………. 4th Loan……………… 5th Loan……………… 17. Transparency 17.1. While taking loan, Is the MFIs staffs disclose before you or explain about all the terms and conditions (including charges if any)? (i) Yes (ii) No If Yes, in which language? (i) Local (Telegu) (ii) English (iii) Hindi 17.2. After getting a loan from the MFI, have you got the sanction letter or any other document clearly indicating the rate of interest, mode of charging interest, levy of any other charges, terms of repayments etc.?

(i) Yes (ii) No


17.3. Have you got any information from the MFI on the rate of interest offered on the thrift services? (i) Yes (ii) No 17.4. Have you got any information related to the premimum and other fees being charged on insurance and pension services? (i) Yes (ii) No 17.5. After getting a loan, have you got any periodical statements of your accounts by means of a passbook or any other mechanism? (i) Yes (ii) No 18. Insurance

18.1. Do you have life insurance? (1) Yes (2) No

18.2. Do you have health insurance? (1) Yes (2) No

18.3. Do you feel the need of having life insurance and/or health insurance ?

18.4. Who is in your family having life insurance? (Specify his/her relation with the

respondent)…………………………………………………………………………………

18.5. Who is in your family having health insurance? (Specify his/her relation with the

respondent)...............................................................................................................................

18.6. Any other insurance like

(i) Crop or weather

(ii) Accident

(iii) Livestock/cattle 19. Feedbacks from the HH 19.1 Reason for not using formal sources like CB, RRBs, Co-operatives 19.2 Reason for not joining SHG. 19.3 What are the incentives for joining SHGs? 19.4 What are the alternatives to the households to meet out their credit need? 20. Any other Observations/Remarks

rural indebtedness and practices of mfis in andhra...

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